Deming Public Schools Forensic Consulting Report - November 2017

LearningTodayforLivingTomorrow
REPORTOFINDEPENDENTACCOUNTANTS
FORENSICAUDIT
CONSULTINGPROCEDURES

OCTOBER16,2017

TABLEOFCONTENTS
DEMINGPUBLICSCHOOLS
FORENSICAUDITCONSULTINGPROCEDURES

REPORTOFINDEPENDENTACCOUNTANTSCONSULTINGPROCEDURES............................................................1
EXECUTIVESUMMARY.....................................................................................................................................1
CONSULTINGPROCEDURES............................................................................................................................12
DETAILEDPROCEDURESPERFORMED............................................................................................................12
CORRECTIVEACTIONSTODATE.....................................................................................................................14
EXITCONFERENCE&DISCLAIMER.......................................................................................................................15
EXHIBIT1ORGANIZATIONCHART(RELEVANTPOSITIONS)..............................................................................16
EXHIBIT2COMPARISONOFFUNDSTHATSHOULDHAVEBEENCOLLECTEDVS.
WHATWASACTUALLYRECEIPTEDANDRECORDED...........................................................................................17
EXHIBIT3TRANSACTIONALANALYSISMONTHOFAUGUST2015................................................................18
EXHIBIT4REPORTEDBALANCESCOMPARISONMONTHOFJUNE2016......................................................19
EXHIBIT5SUMMARYLEVELFUNDSCOMPARISONFINANCIALSTATEMENTS
TOGENERALLEDGERTOBANKSTATEMENTS.....................................................................................................20
EXHIBIT6ANALYSISOFCASHRECEIPTSANDCHECKRECEIPTSVS.DEPOSITS
MONTHOFAUGUST2015..................................................................................................................................21
EXHIBIT7SCHEDULEOFFINDINGSANDRESPONSES.......................................................................................22

REPORTOFINDEPENDENTACCOUNTANTS
TotheBoardofEducation,AuditCommitteeand
Dr.ArsenioRomero,Superintendent
DemingPublicSchools
Deming,NewMexico
and
Mr.TimKeller,NewMexicoStateAuditor
Subject:DemingPublicSchoolsForensicAuditoftheActivityFundsofDemingHighSchool
DearBoardofEducationandAuditorKeller:
ThankyoufortheopportunitytoworkwithyoutocompletethisforensicauditconsultingengagementforDeming
PublicSchools(theDistrictorDPS).Thisreportsummarizesourprocedures,findings,andrecommendationsasit
relatestoourassistancewithyourevaluationofaccountingandbookkeepingirregularitiesatDemingHighSchool
(DHS).
Wehaveperformedtheconsultingproceduresenumeratedbelow,whichwereagreedtobytheDemingPublic
SchoolsandtheNewMexicoOfficeoftheStateAuditor(OSA),solelytoassistyouindeterminingthefraudrisk
anddollarvalueoffundsthatareunaccountedfor,thecausesforunaccountedfunds,thevalueofdivertedfunds,
andthecausesoffunddiversion.TheperiodsubjecttoreviewwasJuly1,2012throughJune30,2016(thePeriod).
ThisconsultingengagementwasconductedinaccordancewiththeAuditAct1266NMSA1978,2.2.2NMAC
Requirements for Contracting and Conducting audits of State Agencies and Standards for Consulting Services
establishedbytheAmericanInstituteofCertifiedPublicAccountants.Thescopeofthisengagementisoutlined
inthebodyofourreport.Thesufficiencyoftheseproceduresissolelytheresponsibilityofthosepartiesspecified
inthisreport.Consequently,wemakenorepresentationregardingthesufficiencyoftheconsultingprocedures
describedbeloweitherforthepurposeforwhichthisreporthasbeenrequestedorforanyotherpurpose.The
Districtremainsresponsiblefortheiraccountingrecords,activityfunds,fraudpreventionanddetection,andfor
maintainingeffectiveinternalcontrolsoverthefinancialstatementsandcompliance.
EXECUTIVESUMMARY
OnAugust17,2016,theformerAssistantSuperintendentreportedtotheDemingPoliceDepartmenta$20,000
embezzlement. OSAdesignatedtheDistrictforaspecialauditinDecember of2016.Afterprocurement,the
Districts contractwith JAGwasexecutedwithfinal approvalon May9,2017. Thepurposeof this consulting
engagementwastoconductalimitedscopeforensicexaminationofDHSsactivityfundstodeterminewhether
theDistricthadsufferedfromtheft,fraud,orembezzlementbytheirformerHighSchoolHeadSecretaryandto
whatextent,fortheperiodcoveringapproximatelyfouryears(July1,2012throughJune30,2016).
4700LincolnRdNE AlbuquerqueNM87109 www.JAGnm.com 505.323.2035
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Theengagementwasdesigned toassistDPSindeterminingthe potential:fraudriskand dollarvalueoffunds

unaccountedfor,thecausesforunaccountedfunds,thevalueofdivertedfunds,andthecausesoffunddiversion.
DPSandtheBoardofEducation(Board)remainresponsibleforprovidingthepublicwithreasonableassurance
that the District has adequate controls to safeguard assets. An adequate system of internal accounting and
operationalcontrolsisnecessarytomeettheseresponsibilities.
Throughourforensictesting,weidentifiedanestimated$256,000incashreceiptsthatshouldhavebeencollected
and deposited, but there were only approximately $110,000 in cash receipt tickets issued to people who
submitted the money. From the limited information available to us and from only certain revenue/receipt
sources,suchaslab/classfees,computerfees,copycenterreceipts,parkingfees,andstudentfines,thereisa
differenceofapproximately$130,000$145,000unaccountedforoverthe4yearsinthePeriod.(EXHIBIT2).
FactorsLeadingtoDiscoveryofHighSchoolCashReceiptsIrregularities
Rumors
Accordingtoseveraladministrators,staff,andteachers,therewererumorsthattheformerHeadSecretary(hired
July26,2012)wasembezzlingfunds.TheformerCFOalsosaidtherewerereportsofherholdingontochecksfor
monthsandnotdepositingthem.OneAdministratorthoughttheformerHeadSecretarymayhavebeengetting
free groceries from Peppers on the Districts charge account. It was commented that she was commonly
purchasingnewitems,givingveryexpensivegiftstocoworkers,droveanewermodelMustang,andwasdoing
well even though her husband was allegedly in jail for domestic violence and her salary was approximately
$25,000(240days/7.5hourdays).
Allegedly,theformerHeadSecretaryhadtheAGMechanicsclassbuildatrailerforherpersonally,butneverpaid
forit.Sheclaimedshedepositedthefundsintotheirclassaccount,butthiscouldnotbeverified.
Nootheremploymentisdocumentedinherpersonnelfile,whichifexisted,wouldberequiredtobedisclosedby
theNewMexicoGovernmentalConductAct.However,oneemployeesharedthattheformerHeadSecretarydid
haveasecondjobattheJuvenileProbationOffice(JPO).
Accordingtoseveralinterviews,nospecificactionwastakeninresponsetotherumorsandredflagsuntilthe
Summerof2016.
WalmartTVs
InFebruary2014,theformerHeadSecretaryinvitedaDistrictemployeetogotoWalmarttopickupsomeTVsfor
theHighSchool.TheDistrictemployeewassurprisedbecauseshesaidtheyusuallydidnotgetalong,butshe
agreedtogo.TheformerHeadSecretarypickedout3TVs,sayingonewasforherhome,andwhenitwastimeto
checkout,sheaskedtheemployeetogogetsomesnacksforaPrincipalmeetinglaterintheday.Sheusedthe
Districtspcardtobuyallthree.Thetwodroppedoff1TVattheformerHeadSecretaryshomeandtheother2
attheHighSchool.Shetoldtheemployeeshewouldturninthereceiptherself(nottheusualprotocol).
From our interviews of employees and a Professional Incident Report (PIR) in the former Head Secretarys
personnelfile,weunderstandthatonMay29,2014,notfeelingcomfortable,theemployeereportedthisincident
totheDHSPrincipal.TheformerCFOinvestigatedtheserialnumbersonthe2TVsatthehighschool,alongwith
thereceiptandtheDHSPrincipalquestionedtheformerHeadSecretary.TheformerHeadSecretarythenstated
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and
thatWalmarthadmadeamistakeandonthefollowingMondaysheproducedareceiptandcash(aneven$600
eventhoughtheTVcost$598orso)forthethirdTV.Normally,accordingtotheirpolicy,Walmartwouldhave
creditedtheDistrictscardforareturn,notgivencashback.OtherthanthePIR(notsubmittedtoHRuntilAugust
2014),remindinghertonotconductpersonalbusinessorpurchasesduringworkhoursandtofollowallpolicies
andprocedures,nodisciplinaryactionwastakenandtheincidentwasnotincludedinherannualevaluation.No
additionaloversightormonitoringwasimplementedoverDistrictassets(includingpurchasesandreceipts)the
formerHeadSecretaryhadaccessto.
ExternalAudits
2015Audit:TheformerAssistantSuperintendentreportedtousthattheformerauditorforfiscalyearending
June30,2015reportedintheexitconference,heldonOctober29,2015,thattheyhadconcernsaboutfraudat
thehighschool.Hesaysthatthisdrovehimtolookintoefficienciesandconsistencyinproceduresatallcampuses,
includingcashreceipts.TheformerCFOstatedhewasnotinthismeeting;however,theauditexitconference
pagelistshimasattending.TheAuditCommitteewascertaintheauditorhadnotreportedanythingofthisnature.
Theformerauditorandhisstaffhadnofindingsonactivityfundsandnorecollectionofreportinganythinglike
thisattheexitconference.
2016Audit:Duringthesubsequentauditfirmsinterimfieldworkin2016,theyinterviewedtheformerCFOabout
fraud,asrequiredbyauditingstandards.Hediddisclosethelikelytheftthatwasbeinginvestigated.Theauditor
prompted the former CFO to comply with NM State Audit Rule 2.2.2.10 N. (2) Possible violations of criminal
statutesinconnectionwithfinancialaffairs,atwhichpointtheformerCFOreportedtheincidenttoNMOfficeof
theStateAuditor,previouslyunawarethiswasrequired.
FormerHeadSecretarysReportstoTeachers
ItwasreportedtousthatteacherswerecomplainingthattheactivityfundbalancestheformerHeadSecretary
reportedtothemwereincorrect,lessthanwhattheyknewtheyshouldhavebeen.Throughourforensictesting,
weseethatcertainactivity/classfundshavenegativebalances.(OneexampleshowninEXHIBIT4.)Itappears
thatCentralOffice,inordertonotshownegativebalancesatyearend,wouldpreparejournalentriestowipeout
the negative balances and then reverse them on the first day of the next fiscal year. This is not allowable in
agency/activity/fiduciaryfunds,whichthepublichasputtheirtrustintheDistricttobethefiscalagentofthe
fundscollectedfromthepublic,teachers,staff,andstudents.
OurintervieweesdiddescribenotreceivingbalancereportsandsometimeswhentheyrequestedPurchaseOrders
foritemstobepurchasedoutoftheirclassroomaccount,thePOswouldhavethefundsencumberedfromanother
Department,suchasMaintenance.Whenquestioned,theformerHeadSecretarywouldjusttellthemnotto
worryaboutitandthatshewouldcorrectitlater.Oneteacherattheendofthe201516schoolyearwentinto
theHSfrontofficewithaPOandsomeoneontheofficestafftoldhimthathedidnothaveenoughmoneyinhis
accounttomakethepurchase,thathehadanegativebalance.Thisteacherknewthiswasincorrectandthat
somethingwaswrong.
JMACPrinter/ReceiptTickets
ItwasaconsistentthemethroughoutourinterviewsthattheformerHeadSecretaryhadvariousexcusesfornot
issuingreceiptticketsforthefundsshereceivedfromtheteachersorstafforstudents.Weseeinemailsthatshe
requestednumeroustimesforherJWALKPrinterwhichconnectedtotheDistrictsaccountingsoftware(Traidic)
tobefixed.However,itwasreportedthateverytimeatechwouldcometofixtheprinteritwouldbeworking.
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and
TheReceptionistattemptedtocoordinateprintingonaregularprinter,buttheformerHeadSecretaryavoided
assistanceonasolution.
SeveralemployeesandadministratorsatvariouslevelsintheDistrict,includingherbossDHSPrincipal,stated
thattheformerHeadSecretarywasmeanandterseandwouldscareoffthosewhorequestedreceipts.There
was one instance reported of the former Head Secretary gaslighting an employee requesting a receipt by
denyingtherealitythattheemployeehadearlierturnedincashtoherearlierthatday.
Yet,thisiscontradictorytothetwoevaluations(April13,2015andMay31,2016)theDHSPrincipalcompleted
andmaintainedinherpersonnelfile.TheseevaluationsratedherasMeetingExpectationsinallrankingareas
andreferredtotheformerHeadSecretaryashavingagoodattitudeandcordial,workstokeeprelationship
positivebetweenallfrontofficestaff,workstobeonthebestoftermswithallfacultyandstaffinthebuildings,
andalways[h]asasmileonherface.And[she]makeseveryonefeelwelcomeandworkstomaintainapositive
environment.Itappearsthe201415and201516schoolyear,theseSummaryofPerformancecommentswere
exactlythesame.
Otherreasonsteachersdidnotreceivereceiptsinclude:notawaretheyneededtoaskforone,notawarethey
shouldtracktheirreceipts/disbursements,beingtoldshewastoobusy,beingtoldtocomebacklaterforareceipt,
beingtoldherJMACTriadicreceiptprinterwasnotworking,andsometimesastudentorstudentaidewouldcome
byandcollectthedeposits,submitthemtotheformerHeadSecretary,andreturnwithoutareceipt.
Reportedly,theformerHeadSecretarywasalsotellingindividualsthatreceiptspolicieschangedandtheycould
onlyacceptcash.Supposedly,oneScienceteacherdidnotcollectlabfeesforacertainclassandtheformerHead
Secretarybecameoddlyangryathimfornotcollectingthefees.Shewasalsogoingtootherareaswherecash
washeld(suchastheActivitiesOffice)andaskingthemtocashchecksshehadreceivedfromparentsinsteadof
justdepositingthem.Shetoldthesepeoplethatsheneededtomakechangefortheparent.
CollectionsforDonations
InMay2016,theDHSReceptionistdiscoveredthatalocalcommunityorganization,CelebrationofLife,which
supportscancerpatients,hadnotreceivedthedonationswhichhadbeencollectedatthehighschoolduringApril.
ThiscollectionwasoriginallytheReceptionistsidea,soshehadrecordsofthecollections($55checksand$110
cash)thatshehadturnedovertotheformerDHSHeadSecretary.Whenquestionedaboutthedonationafew
weeks earlier, the former Head Secretary stated she needed an invoice in order to submit the donations to
CelebrationofLife.InJune2016,theReceptionistreportedtheincidenttotheDHSPrincipal,whoreassuredher
theywerecoveredbecauseCentralOfficewouldsubmitachecktoCelebrationofLife.However,theReceptionist
wasstillnotcomfortableandreportedtheincidenttotheformerAssistantSuperintendent.
Aroundthissametime,theExecutiveDirectorofCelebrationofLifeaskedtheformerAssistantSuperintendent,
whoistheBoardChairofCelebrationofLife,ifthehighschoolhadraisedanydonationsfortheannualfundraiser.
Herepliedthattheyhad.TheExecutiveDirectorwassurprisedbecausetheyhadnotreceivedthefunds.The
former Assistant Superintendent followed up with the Principal, who questioned the former Head Secretary.
Shortlyafterthiscontact,somewherebetween$350and$500wassubmittedtoCelebrationofLife.TheDHS
PrincipalrelayedtousthatthemoneygiventotheformerHeadSecretaryfromsuckersalesanddonationsduring
theannualfundraiser(inadditiontotheReceptionistsrecordsabove)wasnotdepositeduntilmuchlater.

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and
Theft of collections is a common fraud scheme, since wellmeaning individuals want to help causes and trust
peopletodotherightthinginsubmittingtheirdonationstoorganizations.Throughourforensicwork,wesee
evidencethattheformerHeadSecretarywasalsocollectingfundsforindividuals(initialsonlypresented)suchas
(this is not an allinclusive list): DS and her family to cover medical expenses, gas, meals, etc. while she was
undergoingmedicaltreatmentFebruary2013;FuneralexpensesforthefamilyofJT(tacoplatefundraiser)
August2013;FuneralexpensesforPG(>$600plusPeppersgiftcards)January2016;FuneralexpensesforAA
(possiblerelativeoftheformerHeadSecretary),parentofthreechildrenintheDistrictMay2016.
Additionally,oneincidentinparticularwasbroughtupbyemployees:Fourhighschoolstudentswereinvolvedin
averybadcaraccidentandonestudentpassedaway.AfundwassetupatDHStocollectmoniesforthefour
students.TheformerHeadSecretarywasinchargeofcollectingthemoneyraisedthroughtheschool.Themonies
werethensupposedtobedepositedintoanaccountopenedatWellsFargoforthegirlsthatwereinjuredandto
1stNationalBankfortheboysthatwereinjured/killed.Severalpeoplecountedthemoneyraisedwiththeformer
HeadSecretary.Peoplewhoweresupposedtoreceivethemoniescametothehighschoolandstatedtheyhad
never received any monies from the donations. Someone looked online at the Wells Fargo and 1st National
accountsandnoticedthatnodepositshadbeenmadeatall.Staffdidaskwhytherewerenodepositsfivetimes
afterthis,andeachtimetheformerHeadSecretarysstorychanged.Herfinalstatementwasthatshemusthave
depositedallthemoniesintotheWildcataccount.Itisunknownifanyofthefamilieseverreceivedanyofthe
fundsraised.
AccordingtoDistrictPolicy248(SolicitingandSellingbyEmployees):TheDemingBoardofEducationnormally
will not sanction districtwide charitable fundraising drives; however, application may be made to the
SuperintendentsofficeforBoardapprovalofsuchadriveinspecialcircumstances.Wedidnotseeapplications
orBoardapprovalsofthesesolicitations.Thedollaramountsnotdepositedorgiventotherecipientswerenot
determinedsincetheinformationprovidedtouswaslimited.
LackofAssistancefromCentralOfficeFinanceDepartment
According to Administrators we interviewed, when the cash receipts were being investigated internally, the
formerCFOandformerBusinessManagerwereunhelpful,whichraisedsuspicions.Numerouscommentswere
made about the nonresponsiveness of requests to the Central Office and accounts remaining unreconciled.
UnpaidbillswerediscoveredintheformerHeadSecretarysdesk.Wedidseeinourforensicworkthattheformer
HeadSecretarymademultipleaccountingrequestsoftheformerBusinessManagertoaddorchangeactivityfund
GLaccountswithnoresponse(intheinformationwewereprovided).
Ourreviewoftheprioryearauditindicatesalackofinternalcontrolsandaccountabilityoverthefinancesofthe
District.Forinstance,inaccordancewithNMPublicEducationDepartmentPSABNo.18overActivityFundsand
the Districts Policy 521 (Daily Cash Deposits), the bank deposit slip shall have the numbers from applicable
receiptsenteredonitorattachedasreferencethiswasnotoccurringandmadetestingthebankdepositsvery
difficult.
ComputerFees
TheformerDPSHeadSecretarylefttheDistrictforanotherjobinAugustof2016.However,ayearbefore,in
August of 2015, the District issued laptops to each student and charged a $30 Electronic Resources (ER or
Computerfee)toeachstudent.Afterrumorsthatthefundswerenotproperlydeposited,theformerAssistant
SuperintendentinvestigatedthiswiththeformerBusinessManagerinoraroundSeptember2015.Heinquired

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aboutdepositsthatwouldhavebeenmadeinAugust2015forsignificantcomputerfeescollectedfromstudents
astheypickeduptheirlaptopsfortheschoolyear.Itwasdiscoveredthattherewerenolargedepositsinthat
month to coincide with the collection of these large amounts of cash. (EXHIBIT 3). Reportedly, the former
AssistantSuperintendentstatedhewouldbringthesefindingsupwithcabinet;however,noactionwastaken
and almost one year later the former DHS Head Secretary resigned in July and was allowed to complete her
contractintoAugustof2016.
ActionTakenAftertheDiscoveryofIrregularities
Atthispoint,theformerDHSHeadSecretaryhadbeenallowedtocatchuponsmalldepositsintheGeneral
Activitiesbankaccountwhichhadbeenmissingeachmonthforyears,herWalmartTVpersonalpurchasehad
occurredinAugust2014,theresearchwiththeformerBusinessManageronComputerFeesallegedlystolenhad
occurred in September 2015, and the Celebration of Life incident had occurred in May 2016, with no serious
personnelactiontaken.TheformerHeadSecretarysubmittedherletterofresignationonJuly22,2016.She
statedherlastdaywithDPSwouldbeonAugust19,2016,thedayheremploymentcontractended.Shenoted
acceptingapositionoutofdistrict,whichtheformerAssistantSuperintendentnotedtobeinSilverCity,New
Mexico.TheformerHeadSecretaryspersonnelfilestatesherseparationduetoresignation,signedonAugust2,
2016.
Aftertheadvicefromthefiscalyear2016auditornotingthistypeofactivityisrequiredtobereportedimmediately
andaftertheformerDHSHeadSecretaryscontractwasfinished,theformerAssistantSuperintendentcalledthe
DemingPoliceDepartmentandmadeanincidentreport(Case#160817020236)onAugust17,2016ofa$20,000
embezzlement.TheformerCFOlaterreportedtheincidenttotheNMOfficeoftheStateAuditoronAugust26,
2016.OnAugust29,2016,theformerAssistantSuperintendentsharedwithanOfficerthattheschoolsauditor
madehimawarethatthereweresomediscrepancies[attheexitconference,heldonOctober29,2015]withsome
ofthefundsatthehighschool,butcouldntpinpointwhereitwas.Hesaidthatthisledhimtoinvestigatethe
issuehimself.
TheDemingPoliceDepartmentdeterminedaforensicaccountantwouldbenecessary.OnOctober17,2016,an
Officer delivered to the NM Office of the State Auditor (OSA) the documentation the Activities Office had
summarizedfromtheformerHeadSecretaryscomputerfilesandreceiptstheyknewof.Thesetwobindersshow
negativebalancesforindividualactivityaccounts,suchasteacherclassrooms(labfees).OSAdesignatedaspecial
auditinDecemberof2016.OnMarch30,2017,theOfficercontactedOSAandfoundouttheywereworkingwith
theDistricttohireaforensicaccountant.Afterprocurement,theDistrictscontractwithJAGwasexecutedwith
finalapprovalonMay9,2017.
During this time, the former Business Manager, former CFO and Superintendent retired. The new Business
ManagerandSuperintendentbegantheirnewpositions.Overthesummermonths,teachersandstaffwerenot
in school to provide information for the forensic consulting procedures. The audit firm for fiscal year 2016
declinedtoservetheDistrictforthe2017auditduetothehighrisknatureoftheaudit.JAGupdatedtheAudit
CommitteeonJuly27,2017andcontinuedtogatherdata.
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and
ProcedureResultsConcerningAccounting/Records
InAugust2017,JAGdiscoveredthattheformerHeadSecretaryhadaccesstodepositfundsintoasecondbank
account(GateReceipts)inadditiontothenormalbankaccount(GeneralActivities),whichhadbeenreportedto
usastheonlyaccountshetouched,trackedinjustoneaccountingfund.Furthermore,sincetheformerCFOcould
notexplainhowthereceiptswereflowingthroughthevariousaccountsandgeneralledgerfunds/accountsin
Triadic,JAGreconciledallfouryearsanddiscoveredthatthecashreceiptsforthe4yearsinthePeriodhavebeen
commingledwithinthe2bankaccountsandreportedinTriadicin3accountingfunds(Activity,Athletics,andNon
Instructional).Wecalculatedthisatasummarylevel,comparingthegeneralledger(GL)totheauditedfinancial
statements(FS)tothebankstatementanalysis.(EXHIBIT5).
Individualactivity/classaccountshavenegativebalancesandCentralOfficerecordedjournalentrieseachyear
end(6/30)tomovefundsaroundinthegeneralledgerandthenreversedthemthenextday(7/1).Fromour
testing,weseethattheformerHeadSecretarywouldreportbalancestoteachersandotheremployeesthatdid
notexistinthebankandgeneralledgerand/orwereinaccuratebalances.(OneexampleisillustratedatEXHIBIT
4.)OurintervieweescomplainedthattheycouldnevergetbalancereportsfromCentralOffice.Accordingtothe
formerCFO,theformerBusinessManagerwasalwaysbehindonherworkduetopersonalproblems.
Basedontheinformationavailable,ourproceduresdeterminedthatduringthePeriod,forONLYcertainfundsthe
formerHeadSecretaryshouldhavebeencollectingaccordingtoDistrictAdministration,approximately$256,000
incashreceipts(checksandcash)shouldhavebeendepositedintotheGeneralActivitiesbankaccount;however,
thesecouldnotbetracedintothebankstatementsduetoaseverelackofaudittrailandrecords.Transactions
are extremely convoluted as explained in the first paragraph of this section and the accounting is impacted
negativelybytheTriadicaccountingsoftwaretheDistrictuses.Endingbalancesfromoneyeardonotagreetothe
beginningbalancesinthenextyearandtheyearsdonotaccuratelyrollforwardintheaccountingsystem.
Inrelationtotheestimated$256,000incashreceiptsthatfromourforensicworkcalculatedshouldhavebeen
collectedanddeposited,therewereonlyapproximately$110,000incashreceiptticketsissuedtopeoplewho
submittedthemoney.Certainreceiptbooks,however,foranunknownreason,wereshreddedthedaybefore
ourfieldworkatthehighschool.Fromthelimitedinformationavailabletousfromlimitedrevenuesources,there
isadifferenceofapproximately$130,000$145,000unaccountedforoverthe4yearsinthePeriod.(EXHIBIT2).
AlthoughtheformerHeadSecretarydidnothavetheabilitytoprepareorsignchecks,andallPOrequestswent
throughCentralOfficeforapprovals,itwasreportedtousthatshewasusingaccountswithfundsremainingto
coverexpenditurerequestsfromteachers,whohadnegativebalancesintheiractivityaccountspartiallydueto
thepotentialskimmingfraudscheme.
TheDistrictdoesnotmaintainpropercontrolsoverdocuments(collection,organization,storage,retention,and
destruction);therefore,theformerHeadSecretarysemailswerenotretrievablefromMicrosoftOffice365,as
theITDepartmenthaddeletedheruseraccountonAugust18,2016.Atthetimeofourtesting,therewerefewer
filesontheformerHeadSecretarysdesktopthanweexpected,anditwasreportedtousthathersister,working
intheDistrictsITDepartment,wipedhercomputercleanaftershequit.Ourproceduresidentifiedarequestfrom
the DHS Principal to IT on August 19, 2016 to delete all the former Head Secretarys user accounts, which
effectivelydestroyedtheaudittrailandhistoryofheractivitiesinthosesystems.TheDistrictdoesnothavea

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backupsysteminplaceforthesesoftwareprogramsorforlocalcomputerdrives.Wewereonlyabletoobtain
emailscurrentlyundeletedfromothercurrentuseraccountsthatwerefromtheformerHeadSecretary.
AccordingtotheDirectorofTechnology,theDistrictdoesnothaveaRecordsCustodianorpoliciesandprocedures
overrecordretention.Fromourtesting,itdoesnotappeartheDistrictcouldmaintaincontrolsandcompliance
overInspectionofPublicRecordAct(IPRA)requests.NMSA1978Section1425InspectionofPublicRecordsAct
(IPRA):anessentialfunctionofarepresentativegovernmentistoensureaninformedelectorate.Apublicrecords
custodian is designated and all persons are entitled to the greatest possible information about government
activitiesanddecisions.Allrecordsshouldbesafeguardedandavailabletothepublic.
Inthe2016audit,therewerematerialfindingsovercashandgeneralledgerbalancesnotrollingforward.Itis
criticaltofollowthroughoncorrectiveactionsoneachitemidentified.Additionally,itdoesnotappearfromour
testing that the former Superintendent provided the Board of Education a report of expenditures of student
activityfundsasrequiredby6.20.2.10NMACfortheirreviewandapproval.SinceBoardofEducationmembers
areclosetothestudentsandthepublic,theirreview,iftheyhadbeenprovidedtheinformationasrequired,may
have identified red flags earlier. These are important reports to provide monthly to the Board and the Audit
Committeealongwithcorrectiveactionstepsonfindings.
TheFraudTriangle
TheFraudTriangle,showingthattherearethreefactorsthatmustbepresentatthesametimeinorderforan
ordinarypersontocommitfraud,originatedfromDonaldCresseyshypothesis:Trustedpersonsbecometrust
violatorswhentheyconceiveofthemselvesashavingafinancialproblemwhichisnonshareable,areawarethis
problemcanbesecretlyresolvedbyviolationofthepositionoffinancialtrust,andareabletoapplytotheirown
conductinthatsituationverbalizationswhichenablethemtoadjusttheirconceptionsofthemselvesastrusted
personswiththeirconceptionsofthemselvesasusersoftheentrustedfundsorproperty.DonaldR.Cressey,
Other People's Money (Montclair: Patterson Smith, 1973) p. 30. The three factors of the Fraud Triangle are:
Pressure,Opportunity,andRationalization.WediscussbelowpossiblefactorscontributingtotheFraudTriangle
fromtheinformationavailabletous.
Pressure
Thefirstlegofthefraudtrianglerepresentsperceivedpressure.Thisiswhatmotivatesthecrimeinthefirstplace.
Theindividual(s)havesomefinancialproblemthatsheisunabletosolvethroughlegitimatemeans,soshebegins
toconsidercommittinganillegalact,suchasstealingcashorfalsifyingafinancialstatement,asawaytosolvethe
problem.Thefinancialproblemcanbepersonal(e.g.,inpersonaldebtoranaddiction)orprofessional(e.g.,job
ororganizationisinjeopardyorpolitical/publicexpectations).
Inthiscase,wearenotawareofthepersonalpressuresoftheemployeesoftheDistrict;however,inthecaseof
adjusting the activity funds, there may have been pressure of the negative balances and accounting software
issuesbecomingpublic.
Opportunity
Thesecondlegofthefraudtriangleisperceivedopportunity,whichdefinesthemethodbywhichthecrimecan
becommitted.Thepersonmustseesomewaytouse(abuse)herpositionoftrusttosolveherfinancialproblem

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and
withalowperceivedriskofgettingcaught.Itisalsocriticalthatthefraudperpetratorcansolveherproblemin
secret.Manypeoplecommitwhitecollarcrimestomaintaintheirsocialstatus.Fraudstersnotonlyhavetobe
abletostealfunds,shehastobeabletodoitinsuchawaythatwilllikelynotbecaughtandthecrimeitselfwill
notbedetected.
TheformerDHSHeadSecretaryhadtheopportunitytoskimactivityfundsfromDHSandtheFormerBusiness
Managerwasabletorecordjournalentriestoadjusttheactivityfunds,asdescribedaboveandinEXHIBIT7
SCHEDULEOFFINDINGSANDRESPONSESofthisreport.Inadequacyofcontrolscanleadtothemethodbywhich
onecanabusetheirpositionoftrusttosolvehisorherfinancialproblemwithalowperceivedriskofgetting
caught.
NooneinthesupervisorycapacityheldtheformerDHSHeadSecretaryaccountableforheractions,orputinto
placeadditionalinternalcontrolstomonitorherperformance,whichallowedtheopportunityoftheftforalong
periodoftime.
Rationalization
Thethirdlegofthefraudtriangleisrationalization.Thevastmajorityoffraudstersarefirsttimeoffenderswith
nocriminalpast;theydonotviewthemselvesascriminals.Theyseethemselvesasordinary,honestpeoplewho
arecaughtinabadsetofcircumstances.Consequently,thepersonmustjustifythecrimetoherselfinawaythat
makesitanacceptableorjustifiableact.Commonrationalizationsinclude:Iwasonlyborrowingthemoney,I
wasunderpaid,Iworked23jobdutiesandgotpaidforone,andIhadtostealtoprovideformyfamily.
Definitions
NMSA1978Section10163(A).Alegislatororpublicofficeroremployeeshalltreatthelegislator'sorpublic
officer'soremployee'sgovernmentpositionasapublictrust.Thelegislatororpublicofficeroremployeeshalluse
thepowersandresourcesofpublicofficeonlytoadvancethepublicinterestandnottoobtainpersonalbenefits
orpursueprivateinterests.
NMSA197830166.Fraudconsistsoftheintentionalmisappropriationortakingofanythingofvaluewhich
belongstoanotherbymeansoffraudulentconduct,practicesorrepresentations.
NMSA1978Section30168.Embezzlementconsistsoftheembezzlingorconvertingtohisorherownuseof
anythingofvaluewithwhichheorshehasbeenentrusted,withfraudulentintenttodeprivetheownerthereof.
NMSA1978Section301610.Forgeryconsistsof:A)falselymakingoralteringanysignatureto,oranypartof,
any writing purporting to have any legal efficacy with intent to injure or defraud; or B) knowingly issuing or
transferringaforgedwritingwithintenttoinjureordefraud.Legalefficacyisawritingwhichcouldbemade
thefoundationofliabilitythatwouldapparentlyoperatetothelegalprejudiceofanother.Weusuallythinkof
forgeryasalteringadocumentforfinancialgainbutitcanalsobeanydocumentrequiredbylawtobefiledor
necessarytothedischargeofapublicofficialsduties.
9

DemingPublicSchools
and
NMSA197822837.Publicschoolfunds:Exceptformoneyreceivedforacafeteriaorforanactivityfund,all
moneyforpublicschoolpurposesdistributedtoaschooldistrict,orcollectedbyacounty,schooldistrictorpublic
schoolauthoritiesforaschooldistrict,shallbedeliveredtoandkeptbyacountytreasureroraboardoffinance
ofaschooldistrictinfundsapprovedbythedivision.Disbursementsfromthesefundsshallonlybemadefor
matured debts by voucher and warrants or checks of the local school board. In no event shall any money be
expendedordebtsincurredexceptasauthorizedbythePublicSchoolFinanceAct.Moneyforacafeteriaorfor
anactivityfundshallbedepositedinabank,orinasavingsandloanassociationwhosedepositsareinsuredby
anagencyoftheUnitedStates,ormaybedepositedinacreditunion,aslongasthecredituniondepositisinsured
byanagencyoftheUnitedStates,approvedbythelocalschoolboard.Thelocalschoolboardmaydepositany
cafeteriafunds,anyactivityfundsoranyotherfundsinoneor moreaccountswithanysuchbankorinsured
savingsandloanassociationinits county,butnolocalschoolboard,inany officialcapacity,shalldepositany
cafeteriafunds,anyactivityfundsoranyotherfundsinanyonesuchsavingsandloanassociationtheaggregate
ofwhichwouldexceedtheamountoffederalsavingsandloaninsurancecorporationinsuranceforasinglepublic
account.Asusedinthissection,"deposit"includesshare,sharecertificateandsharedraft.
NM State Audit Rule 2.2.2.15 SPECIAL AUDITS, ATTESTATION ENGAGEMENTS, PERFORMANCE AUDITS AND
FORENSICAUDITS:
A.Fraud,wasteorabuseingovernmentreportedbyagencies,IPAsormembersofthepublic:
(1)Definitionoffraud:Fraudincludes,butisnotlimitedto,fraudulentfinancialreporting,misappropriationof
assets,corruption,anduseofpublicfundsforactivitiesprohibitedbytheconstitutionorlawsofthestateofNew
Mexico.Fraudulentfinancialreportingmeansintentionalmisstatementsoromissionsofamountsordisclosures
in the financial statements to deceive financial statement users, which may include intentional alteration of
accountingrecords,misrepresentationoftransactions,orintentionalmisapplicationofaccountingprinciples.
Misappropriation of assets means theft of an agencys assets, including theft of property, embezzlement of
receipts,orfraudulentpayments.Corruptionmeansbriberyandotherillegalacts.(GAO14704Gfederalinternal
controlstandardsparagraph8.02).
(2)Definitionsofwasteandabuse:Wasteistheactofusingorexpendingresourcescarelessly,extravagantly,or
tonopurpose.Abuseinvolvesbehaviorthatisdeficientorimproperwhencomparedwithbehaviorthataprudent
personwouldconsiderreasonableandnecessaryoperationalpracticegiventhefactsandcircumstances.This
includesthemisuseofauthorityorpositionforpersonalgainorforthebenefitofanother.Wasteandabusedo
notnecessarilyinvolvefraudorillegalacts.However,theymaybeanindicationofpotentialfraudorillegalacts
and may still impact the achievement of defined objectives. (GAO14704G federal internal control standards
paragraph8.03).

Internalcontrols
Effectiveinternalcontrolsrequireindependentandethicaloversightwithintegrity,accountabilityandongoing
risk assessment in order to provide reliable indicators of an entities performance. The U.S. Governmental
AccountabilityOffice,inSectionOV1.01oftheGreenBook,definesinternalcontrolasaprocesseffectedbyan
entitysoversightbody,management,andotherpersonnelthatprovidesreasonableassurancethattheobjectives
ofanentitywillbeachieved...Withouttheappropriatedesignandimplementationofthesecontrols,entities
10

DemingPublicSchools
and

aremoresusceptibletofraud,wasteandabuse.JAGrecommendstheDistrictadopttheUSGAOGreenBookas
thebasisforitsinternalcontrols,guidingtheongoingdevelopmentofitspoliciesandprocedures.Thesepolicies
andproceduresneedtoensuretransparencyandriskassessmentandmonitoringareoccurring.
AuditingStandards
Auditingstandardsprovidethatitistheresponsibilityofmanagementtoensurethatagencieshavesoundinternal
structure.StatementofAuditingStandards(SAS)Codification(AU)Section110,paragraph.03,explainsthatitis
management'sresponsibilitytoadoptsoundaccountingpoliciesandtoestablishandmaintaininternalcontrol
thatwill,amongotherthings,initiate,authorize,record,process,andreporttransactions(aswellaseventsand
conditions)consistentwithmanagement'sassertionsembodiedinthefinancialstatements.SASAU316paragraph
.04statesthat"Management,alongwiththosechargedwithgovernance,shouldsetthepropertone;createand
maintainacultureofhonestyandhighethicalstandards;andestablishappropriatecontrolstoprevent,deter,
and detect fraud. When management and those charged with governance fulfill those responsibilities, the
opportunitiestocommitfraudcanbereducedsignificantly."
Furthermore,StatementonAuditingStandardAUSection325paragraph3providesthat"internalcontrolisa
processeffectedbythosechargedwithgovernance,management,andotherpersonneldesignedtoprovide
reasonable assurance about the achievement of the entity's objectives with regard to reliability of financial
reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations."
AgenciesandIPAsthatpursuanttoSection1266NMSA1978,anagencyorIPAshallnotifytheStateAuditor
immediately,inwriting,upondiscoveryofanyviolationofacriminalstatuteinconnectionwithfinancialaffairs.
The notification shall include an estimate of the dollar amount involved, and a complete description of the
violation,includingnamesofpersonsinvolvedandanyactiontakenorplanned.

Eachagencyshouldevaluatetheinternalcontrolsbyreviewingandtestinginternalcontrolstoensuretheyare
properly designed and implemented. Any violation of law or good accounting practice including instances of
noncomplianceorinternalcontrolweaknessesmustbereportedasanauditfindingperSection1265NMSA
1978.PursuanttoGAGAS4.23,"auditorsshouldcommunicateinthereportoninternalcontroloverfinancial
reportingandcompliance,basedupontheworkperformed:significantdeficienciesandmaterialweaknessesin
internalcontrol;instancesoffraudandnoncompliancewithprovisionsoflawsorregulationsthathaveamaterial
effect on the audit and any other instances that warrant the attention of those charged with governance;
noncompliance with provisions of contracts or grant agreements that has a material effect on the audit; and
abusethathasamaterialeffectontheaudit."
Findings
This report summarizes our findings discovered during test work to accomplish the goals of the forensic
examination.WehaveprovidedspecificrecommendationsfortheDistricttostrengtheninternalcontrolsover
thefinancialstatementsandcomplianceinrelationtoactivityfunds,fraudprevention,andfrauddetectionin
EXHIBIT7SCHEDULEOFFINDINGSANDRESPONSESofthisreport.Wewanttoemphasizeitisvitalforthe
Districttoperformfrequentriskassessmentsforallfinancialareasatallcampusesandmonitorproceduresover
its corrective actions, along with accountability for noncompliance, to prevent, detect, and report situations
promptlyinthefuture.Districtmanagementisdedicatedtoimplementingthesesafeguardstofurthersecure
receiptsandactivityfundsatDPSandhasalreadytakensomecorrectiveactionandimplementedsomeofthe
recommendationstopreventfuturetheft,fraudorembezzlement.
11

DemingPublicSchools
and
Findingsincludetheelementsasrequiredby2.2.2.15Band2.2.2.10I(3)(c)NMAC.Managementsresponsesto
thefindingswerenotauditedand/orpresentedverbatim.
Ourexaminationwaslimitedtotheareasandperiodsdescribedandlimitedtothedocumentsavailableandthe
interviewsofemployeesperformed.Hadwereviewedotherperiodsorareasordocuments,othermattersmay
havebeenidentifiedwarrantingtheDistrictsattention.
Ourprocedureswereasfollows:
1. Establishanunderstandingoftheprocessesandprocedures(officialandunofficial)utilizedbyDHSfor
handlingcashduringthePeriod(July1,2012throughJune30,2016).
2. IdentifyalltheHighSchoolrevenuesourcesduringthePeriod.
3. Identifyandanalyzeallactivityfundtransactions,includingclassandlabfees,handledbytheHighSchool
Administrator[formerDHSHeadSecretary]duringthePeriod.
4. Identifyandanalyzeallhighschoolchargeaccounts,includinglocalvendors,forpurchaseshandledbythe
HighSchoolAdministrator[formerDHSHeadSecretary]duringthePeriod.
5. DocumentallrecordssupportingrevenuesduringthePeriodincluding:
a. Receiptsandreceiptbooks,fromtheadministratorandteachers.
b. Documentsusedfortrackingchangesinthecustodyofcash.
c. Bankrecordsandreconciliations.
6. IdentifyfraudrisksatDHSforthePeriod.
DETAILEDPROCEDURESPERFORMED
Thissectionexpandsuponourtestingandresultsoftheconsultingprocedureslistedabove.JAGhasperformed
proceduresforthetimeperiodrequested,June1,2012throughJanuary31,2016:
1. ProcessesandProcedures
WeinterviewedthosewhowereinvolvedintheprocessfortheDHSactivityfunds,including:DPSformer
AssistantSuperintendent,formerDHSPrincipal,theformerBusinessManagerandformerCFO(pastand
current), Staff, High School Receptionist, Teachers, the former auditors, and many others. See also
EXHIBIT1DISTRICTORGANIZATIONCHART(RELEVANTPOSITIONS).
WereviewedtheDPSBoardofEducationspoliciesandtheDistrictsinternalprocedures.Weidentified
differencesbetweenthewrittenpoliciesandprocedures(official)andtheactualpracticesoccurringdaily
(unofficial)andhavereportedresultsinEXHIBIT7SCHEDULEOFFINDINGSANDRESPONSESofthis
report.
Webecamefamiliarwiththeprocessesandproceduresaswetestedtherecordsandreviewedwhatthe
DPSFinanceDepartment,CityofDeminglawenforcement,andtheStateAuditorhadalreadycollected
onthismatter.
Since the former DHS Head Secretary was no longer an employee at the time of our procedures, the
Districtdidnotbelieveittobeappropriateforustointerviewher.Therefore,ourproceduresdidnot
includeinterviewingher.
12

DemingPublicSchools
and
2. IdentifyRevenueSources
WeidentifiedrevenuesourcesintheDistrictsannualauditandactivityfunddisclosures.
Interviewsassistedusindeterminingwhattherevenuesourcesshouldbe.
To the extent that information was available, we identified the fees and other types of activities that
shouldhavegonethroughthisactivityfundduringthetimeperiodrequested.
We reviewed District provided rosters, fees, emails, cash receipt tickets, and the two binders of
information compiled by the Activities Office to ensure we had a complete listing of revenue sources
(activities)duringtheperiod.
See EXHIBIT 2 COMPARISON OF FUNDS THAT SHOULD HAVE BEEN COLLECTED VS. WHAT WAS
ACTUALLYRECEIPTEDincludedinthisreport.
3. IdentifyandScrutinizeTransactions
WeappliedforensicauditingprocedurestothetransactionshandledbytheformerHeadSecretaryduring
theperiodrequested.Ingeneral,theinformationprovidedtous,theformerHeadSecretarysandCentral
Officesrecords,wereincompleteandinaccurate.Wereliedsubstantiallyonrecordsfromtheremaining
cashreceiptbooksandbankdepositslipswithinthebankstatementstocompleteourengagement.
See EXHIBIT 2 COMPARISON OF FUNDS THAT SHOULD HAVE BEEN COLLECTED VS. WHAT WAS
ACTUALLYRECEIPTEDincludedinthisreport.
4. IdentifyandAnalyzeHighSchoolChargeAccounts
Throughourinterviews,itwasdisclosedtousthattheformerDHSHeadSecretarywasabletorequest
PurchaseOrders,butnotgeneratethem.Additionally,shecouldnotprepareorsigncheckspayingon
vendoraccountsandmayhaveonlyhadaccesstothePepperschargeaccount.
Wewereunabletotestthedetailsofthechargeaccountswithoutdetailsfromthevendors.Evenwith
thechargeaccountdetail,itwouldnotbefeasibletodeterminewhochargedandwhatthegrocerieswere
forsincetherewerenotrackingmechanismsinplaceotherthanthepurchaseorders.
Itislikelythatpurchaseorderswerecodedincorrectly,asreportedtousbyemployees.SeealsoEXHIBIT
7SCHEDULEOFFINDINGSANDRESPONSESofthisreport.
5. DocumentRecordsthatSupportRevenues
Weexamined,totheextentavailable,receipts,receiptbooks,documentsusedfortrackingchangesinthe
custodyofcash,bankrecordsandreconciliations,emails,contentsoftheformerDHSHeadSecretarys
office, information provided to us in interviews, reports from CO, audited financial statements, check
stubsandimages,variousdepositlistings,electronicrecords,TriadicreportsandtheformerDHSHead
Secretaryspersonnelfile.
Theitemslistedabovehelpuspullinformationintouseableformats(suchasgraphsandpivottables)to
analyze trends, risks, and causes of the alleged fraud, deficiencies in internal controls, and non
compliance.
We compared the records to applicable policies, procedures, regulations, and state laws and have
reportedresultsinEXHIBIT7SCHEDULEOFFINDINGSANDRESPONSESofthisreport.
6. IdentifyFraudRisks
Tohelpidentifynotonlywhatwentwronginthepast,butalsowhatcouldbeimprovedinthefuture,our
teamconsistedofhighlytrainedindividualsingovernmentalandforensicauditing;includingthree
13

DemingPublicSchools
and
Certified Public Accountants (CPAs), one Certified Fraud Examiner (CFE), one Certified Governmental
FinanceManager(CGFM),andvariousstaffwithtwoyearsorgreaterexperienceingovernmentaland
auditingandconsulting.
Regarding potential collusion, we believe the lack of controls and results of our analysis of the bank
accountsandfunds,showinglargevariances,increasestheDistrictsriskofcollusion.
Weidentifiedrisksandourrecommendationsforstrengtheningcontrolstohelpyoupreventanddetect
fraudinthefuturearewithinEXHIBIT7SCHEDULEOFFINDINGSANDRESPONSESofthisreport.
CORRECTIVEACTIONSTODATE
EmployeeshavedisclosedtheallegedembezzlementtotheNewMexicoOfficeoftheStateAuditor(OSA)
(August26,2016)andtheCityofDemingPoliceDepartment(August17,2016).
AllDHSfundsarenowdepositedthroughtheActivitiesOffice.
TheDistrictturnedovertwobindersofinformationshowingnegativebalancesbyclass/activityfundto
thePoliceDepartment.
TheDistrictengagedanexternalindependentauditor,JaramilloAccountingGroupLLC(JAG),toperform
theseforensicprocedures.
AnewPrincipalwashiredatDHSforthe201718schoolyear.
AnewSuperintendentandformerCFOhavebeenhired.
We were not engaged to, and did not conduct an audit examination, the objective of which would be the
expressionofanopinionontheaccountingrecordsoftheDistrictunderattestationstandards.Accordingly,we
provide no opinion, attestation or other form of assurance with respect to our work or the information upon
which our work is based. The procedures performed do not constitute an examination in accordance with
generallyacceptedauditingorattestationstandards.Hadweperformedadditionalprocedures,othermatters
mighthavecometoourattentionthatwouldhavebeenreportedtoyou.
Thisreportisintendedsolelyfortheinformationofthepartiesspecifiedabove,Districtmanagement,andparties
identifiedbytheDistrictsmanagementandtheirdesignatedlegalcounsel,andlawenforcementagencies.This
reportshouldnotberelieduponbyanyotherparty.JAGacceptsnoresponsibilitytoanyotherpartytowhom
thisreportmaybeshownorwhomayotherwisegainaccesstothisreport.
Weappreciatetheopportunitytoassistyouinyourassessmentoftheseactivitiesandachievestrongerinternal
controls. Please do not hesitate to call if you have any questions or need further assistance regarding this
importantmatter.JAGwouldliketosincerelythanktheDistrictsadministratorsandstafffortheirsupportin
assistinguswithourprocedures.
JaramilloAccountingGroupLLC(JAG)
Albuquerque,NewMexico
October16,2017
14

DEMINGPUBLICSCHOOLS
EXITCONFERENCE&DISCLAIMER
ThecontentsofthisreportwerediscussedonOctober13,2017,inaclosedsession.Thefollowingindividuals
wereinattendance:
DemingPublicSchoolsBoardofEducation DemingPublicSchoolsAuditCommittee
MattRobinson,President MattRobinson,BoardofEducation
BayneAnderson,Secretary BayneAnderson,BoardofEducation
RonWolfe,Member LloydValentine,CommunityMember
WilliamBillyRuiz,Member TheresaHutts,CommunityMember
Dr.ArsenioRomero,Superintendent(ExOfficio)
LesleyDoyle,CFO(ExOfficio)
DemingPublicSchoolsManagement
LesleyDoyle,CFO
JaramilloAccountingGroupLLC(JAG)
AudreyJ.Jaramillo,CPA,CFE,ManagingPartner
WilliamT.Huntsman,CPA,AuditManager
MatthewTrawinski,AuditStaff
DISCLAIMER
Wearenotlawyersandarenotalawenforcementagencyorprosecutingofficer.Wedonothavepowertosubpoenarecords
or power to subpoena witnesses to testify under oath. We are private accounting firm conducting a specified forensic
consultingservicesbasedoninformationvoluntarilyprovidedbythesubjectoftheengagement.Here,thesubjectofthe
consultingprocedureshadincompleteinformationduetoinadequatecontrolsanddocumentationatDHS.Becausewehave
incompleteinformation,thisletterisintendedonlytoraisepotentialfraudandabuse,aswellaspotentialnoncompliance
withlaws,regulations,andcontracts,aswellaspotentialcriminalviolationsinconnectionwiththefinancialaffairsofthe
District.
Wecannotconcludeontheguiltorinnocenceofanyparty.Wecannotanddonotpurporttobeinapositiontoestablish
beyond reasonable doubt whether such violations occurred. Importantly, these allegations of potential fraud, waste, or
abuseand/orpotentialviolationsofcriminalstatuteinconnectionwithfinancialaffairscovermanyyearsandwillrequire
furtherinvestigationbytherelevantofficesandauthorities,whichmayincludereferraltotheproperprosecutingofficer.
We do not draw legal conclusions here and, instead, raise the matters below for consideration and investigation by
appropriate authorities. Exercising our auditor judgment and erring on the side of transparency and disclosure, we are
identifyingtheseriskstotheDistrictandtheNewMexicoOfficeoftheStateAuditorsothattheycandetermineappropriate
nextsteps.
15

EXHIBIT1
DEMINGPUBLICSCHOOLS
ORGANIZATIONCHART(RELEVANTPOSITIONS)

JUNE2017

LEGISLATIVE LOCALGOVERNMENT EXECUTIVE
STATESTATUTES POLICIESANDPROCEDURES REGULATIONS

NMHouse DPSBoardof NMGovernor
andSenate Education SusanaMartinez

Superintendent PublicEducation
LFC LESC HarvieleeMoore(to2014) Department
DanLere(20142017) (OversightAgency)
CENTRALOFFICE
ArsenioRomero

Asst.Superintendent(to
2017)MaintenanceDirector

FINANCE IT RayTrejo
DEMINGHIGH
DEPARTMENT DEPARTMENT SCHOOL

FinanceDirector,CFO ITDirector DHSPrincipal DHSActivitiesDirector
TedBurr(to2017) RagenaBlankenship JaneanGarney(to2017) BernieChavez
LesleyDoyle
CopyCenter Former Student ITTech Administrative HSHead NewHS ER Activity Shop

(to2016)/ Business DataMgr. Joey Assistant Secretary Secretary Coordinator AdmAsst. Teacher
FederalProg Manager Genia IrmaHerrera Beatrice Sylvia DavidWertz Gloria Larry
Garcia
SheilaOffutt DianaPeterson Allison Armendariz Contreras Milo VonTress
FormerHSSecretary ShopTeacher CulinaryArtsTeacher BiologyInstructor CareerTechTeacher CAD/Eng.Design

ErinLopez BJ Trejo Genevieve Wertz DanielGamboa SusieDeLaTorre DavidJaramillo
16
EXHIBIT2
DEMINGPUBLICSCHOOLS
DemingHighSchoolActivityFunds
ComparisonofWhatShouldHaveBeenCollectedvs.
WhatwasActuallyReceiptedvs.
AmountReceiptedperGeneralLedger
SCHOOLYEARS20122016
AmountConfirmed
AmountThat asCollected DifferenceBetween DifferenceBetween
ShouldHaveBeen (Receipted)per WhatShouldHave AmountEnteredas WhatShouldHave
Collected,Netof ReceiptBooks BeenandWhatwas Receiptedintothe BeenandWhatwas
SchoolYearSourceofFees/Fines AmountsForgiven ProvidedtoJAG ActuallyReceipted GeneralLedger ReceiptedperG/L
20122013
Lab/ClassFees(A) $ 25,160 $ 984 $ 24,176 $ 8,482 $ 16,678
ParkingFees(B) 1,670 1,670 160 1,510
StudentFines(C) 8,441 8,441 8,441
CopyCenter(D) 21,522 21,499 23 21,667 (146)
Subtotal(20122013): 56,793 22,483 34,310 30,309 26,483
20132014
Lab/ClassFees 24,710 3,166 21,544 1,860 22,850
ParkingFees 1,670 1,670 1,670
StudentFines 8,441 8,441 8,441
CopyCenter 22,258 19,504 2,754 21,023 1,234
Subtotal(20132014): 57,079 22,670 34,409 22,883 34,195
20142015
Lab/ClassFees 26,465 3,874 22,591 5,494 20,971
ParkingFees 1,670 1,260 410 351 1,319
CopyCenter 18,301 7,444 10,858 17,827 474
Subtotal(20142015): 54,877 12,578 42,300 23,672 31,205
20152016
Lab/ClassFees 18,045 8,877 9,168 8,386 9,659
ComputerFees(E) 40,410 37,302 3,109 22,762 17,648
CopyCenter 18,989 6,383 12,606 15,446 3,543
Subtotal(20152016): 85,885 52,562 33,323 46,594 39,291
Total(20122016): $ 254,634 $ 110,291 $ 144,342 $ 123,459 $ 131,175
(A) Per practice, lab fees, class fees, computer fees, parking fees, and student fines were deposited into the "General Activities" bank account and copy center
revenuesweredepositedtothe"GateReceipts"bankaccount.
(B) Parking fees were confirmed as collected in school years 20122013 and 20132014; however, the receipt books were shredded just prior to JAG's arrival for field
work.Theamountcollectedfor20142015wasusedforschoolyears20122013and20132014asstudentenrollmentdidnotfluctuatemuch.
(C) Student fines were confirmed as collected in all school years above; however, the receipt books were shredded just prior to JAG's arrival for field work. The
amount collected for 20152016 was used for the other school years as student enrollment did not fluctuate much. We used the conservative amount that was in
the G/L for 20152016 even though it was reported to us that Student Fees collected were typically $40,000 per year since Seniors had to pay their accounts to
graduate.
(D) Copy Center deposits were traced directly to the corresponding bank statement for which the deposit was to have occurred. Amount appearing in "Should Have
Been Collected" column is the amount collected for deposit according to records kept by the Director of the Copy Center and Student Store. Amount appearing in
the "Confirmed as Collected" column is the amount of directly traced deposits. Unaccounted for deposits in Copy Center deposits increased significantly after they
begantobesubmittedtotheformerDHSHeadSecretary,beginninginfiscalyear20142015.
(E) Computer Fees were implemented in August of 2015 when the District purchased a laptop for each student. This was a onetime fee charged to each student
that covered them the entire time they were in high school. Students were also charged replacement fees for power cords, which we did not summarize. This
amountwascalculatedbymultiplyingthenumberofcomputersissuedtimesthe$30fee,lessthefeesforgiven.
17
EXHIBIT3
DEMINGPUBLICSCHOOLS
DemingHighSchoolActivityFunds
TransactionalAnalysis
ExampleMonthofAugust2015
CarbonCopyReceiptBook(Cash/ChecksCollectedandReceiptsIssued)vs.BankDeposits
ComputerFees $ 35,030
ParkingFees 280
WildcatRecognition
PAC/PTO
Lab/ClassFees:
AgMechanics $ 100
ArtR 680
BusinessLabFees 193
HomeEconomics 1,020
EMT/Anatomy 674
ArtG 416
HomeEcLabFees 680
Keyboarding 170
Arts&CraftsK 540
HomeEcP 390
4,863
TotalReceiptedCash/CheckCollections: 40,173
ActualDepositstoGeneralActivitiesBankAccount: (23,785)
MoniesDeemedtobeCollected/ReceiptedbutNotDeposited: $ 16,388
18
EXHIBIT4
DEMINGPUBLICSCHOOLS
DemingHighSchool(DHS)ActivityFunds
ReportedBalancesComparison
ExampleMonthofJune2016
ThisExhibitcomparesaccountingrecordstowhattheformerDHSSecretaryreportedtopeopletheirbalanceswere.
Balancesshereporteddidnotagreetoteachers'recordsortotheaccountingrecords.
EXAMPLEComparisonsoffomerDHSHeadSecretary'sEmailReportstoDHSStaffvs.DHSGeneralLedgerBalances
EXAMPLE
GeneralLedger FormerDHSSecretary's Differencebetween
AccountingBalanceasof EmailReporttoDHSStaff GeneralLedgerBalances
Class/ActivityAccountTitle June30,2016 onAugust15,2016(A) andSecretary'sReport
ElectronicResources $ 9,634 $ 1,816 $ 7,818
AgriculturalMechanics (678) 87 (765)
Arts&Crafts 584 184 400
Business (168) 237 (405)
EmergencyMedicalTraining 1,414 1,414
Art(HofacketCampus) 350 215 135
HomeEconomics(HofacketCampus) (2,414) 733 (3,147)
Keyboarding(HofacketCampus) 1,029 1,029 (0)
Jewelry (237) 656 (892)
HomeEconomics(MainCampus) (1,107) 2,922 (4,030)
ParentalAdvisoryCommittee/ParentTeacherOrganization (1,749) 106 (1,855)
TechnologyLab (401) 326 (728)
SummerSchool 1,600 (1,600)
$ 6,494 $ 9,071 $ (2,577)
(A)FormerDHSSecretarydidnotreportbalancesasofJune30,2016;therefore,hernextreporttoDHSStaffispresentedhere.Beingsummertime,there
waslikelyverylittleaccountactivityfromJune30,2016toAugust15,2016.
CopyCenterRecords FormerDHSSecretary's GeneralLedgerBalancein DifferenceBetween

June2,2015(closed EmailApril25, Triadic(Location44, AccurateBalanceandG/L
forsummer) 2016 Object314)June30,2015 Balance
CopyCenterJune30,2015 $ 5,436 $ 6,885 $ $ (5,436)
GeneralLedgerBalancein DifferenceBetween
CopyCenterRecords FormerDHSSecretary's TriadicJune30, AccurateBalanceandG/L
April21,2016 EmailApril25,2016 2016 Balance
CopyCenterApril21,2016 $ 5,063 $ 4,188 $ (583) $ (5,646)
GeneralLedgerBalancein DifferenceBetween
FormerDHSSecretary's Triadic(Location44, ReportedBalanceandG/L
EmailApril26,2016 Object141)June30,2015 Balance
ERRoom(ComputerFees) $ 19,734 $ 316 $ (19,418)
BalanceatJune30,2017 GeneralLedgerBalancein DifferenceBetween

ERTeacherRecords withabovebeginning Triadic(Location44, ReportedBalanceandG/L
June30,2017(B) balanceincluded Object141)June30,2017 Balance
ERRoom(ComputerFees) $ 11,673 $ 31,407 $ (8,723) $ (40,130)
(B)Employeeassumeda$0beginningbalanceatJuly1,2016,whichisnotaccurate.
19
EXHIBIT5
DEMINGPUBLICSCHOOLS
DemingHighSchoolFundBalanceSummary
SummaryLevelFundsComparisonFinancialStatementstoGeneralLedgertoBankStatements
SCHOOLYEARS20122016
FinancialStatementtoGeneralLedgerAnalysis
6/30/2012 6/30/2013 6/30/2014 6/30/2015 6/30/2016

PerAuditedFinancialStatements
ActivityFund $135,163 $ 133,724 $ 132,460 $ 167,465 $194,879
AthleticsFund 837 11,712 393 548
InstructionalFund 485,974 478,526 423,211 356,724 350,221
TotalPerFinancialStatements 621,974 623,962 555,671 524,582 545,648
AmountperGeneralLedger 625,307 627,958 560,061 524,581 545,133

Difference $(3,333) $ (3,996) $ (4,390) $1 $515
BankStatementAnalysis(ComparedtoF/SandG/L)
6/30/2012 6/30/2013 6/30/2014 6/30/2015 6/30/2016
GateReceipts $495,069 $ 507,417 $ 432,605 $ 375,735 $318,330

GeneralFund 148,807 142,881 139,575 174,391 206,652
$643,876 $ 650,298 $ 572,180 $ 550,126 $524,982
DifferencefromfinancialStatements $21,902 $ 26,336 $ 16,509 $ 25,544 $(20,666) (A)
DifferencefromGeneralLedger $18,569 $ 22,340 $ 12,119 $ 25,545 $(20,151) (A)
ActivityFundAnalysis(GeneralLedgerFund90000)
6/30/2012* 6/30/2013 6/30/2014 6/30/2015 6/30/2016
Activityfundbeginning $ 135,163 $ 128,369 $ 73,448 $4,052

Activityfundin 183,100 218,804 178,548 213,452
Activityfundout (189,894) (273,725) (247,944) (219,955)
Activityend $135,163 $ 128,369 $ 73,448 $4,052 $(2,451)
NonInstructionalFundAnalysis(GeneralLedgerFund23000)
6/30/2012* 6/30/2013 6/30/2014 6/30/2015 6/30/2016
Noninstructionalbeginning $ 485,974 $ 484,545 $ 483,281 $518,286

Noninstructionalin 358,257 340,301 386,114 473,511
Noninstructionalout (359,686) (341,565) (351,109) (446,097)
Noninstructionalending $485,974 $ 484,545 $ 483,281 $ 518,286 $545,700
*6/30/2012endingbalanceswereassumedtobecorrectforpurposesofthisanalysisandwerenottested.
ExplanationtoLetterNote(A)
Changefrom2015to2016(FinancialStatementstoBankDifferences) $46,210
StaledatedChecksvoidedinJuly2015toMay2016(carriedfrompreviousyearsinGL) 6,604
StaledatedChecksvoidedinJune2016(carriedfrompreviousyearsinGL) 17,551
JEtofund21000fromDPSdidnotoccurbeforeyearend 24,000
Changefrom2015to2016(FinancialStatementstoBankDifferences)explained 48,155
Unexplained (1,945)
$46,210
BankStatementAnalysis(ComparedtoF/SandG/L)After$24,000reimbursementtoFund21000
6/30/2016
GateReceipts(Adjustedfor$24,000notedabove) $342,330
GeneralFund 206,652
$548,982
DifferencefromfinancialStatements(BankhigherthanGL) $3,334
DifferencefromGeneralLedger $3,849
AccountantexpectationBankwouldbehigherthanFS/GLatJune30,2016duetounclearedchecks
20
EXHIBIT6
DEMINGPUBLICSCHOOLS
DemingHighSchoolLaptopFeesCollected
AnalysisofCashReceiptsandCheckReceiptsvs.Deposits
CashReceiptsAnalysis CheckReceiptsAnalysis
ReceivedPer DepositedPer AmountNot ReceivedPer DepositedPer AmountNot

ReceiptsIssued DepositSlips Deposited ReceiptsIssued DepositSlips Deposited(A)
$7,447 $2,637 $4,810 $ 2,010 $2,290 $ (280)

5,574 2,045 3,529 1,500 1,530
(30)
6,462 4,062 2,400 1,020 1,020

1,563 1,102 461 300 270 30
2,719 1,299 1,420 120 390 (270)
2,493 1,474 1,019 570 640 (70)
2,387 1,604 783 220 350 (130)
575 85
490 60 30 30
$29,220 $14,308 $14,912 $ 5,800 $6,520 $ (720)
CombinedReceiptsAnalysis CashReceiptsvs.CashDeposited
August4,2015throughAugust24,2015 $10,000
Amount Amount $9,000
$8,000
DepositSlipDate Receipted Deposited Difference
$7,000
8/4/2015 $9,457 $4,927 $4,530 $6,000
8/5/2015 7,074 3,575 3,499 $5,000
8/6/2015 7,482 5,082 2,400 $4,000
$3,000
8/7/2015 1,863 1,372 491 $2,000
8/18/2015 2,839 1,689 1,150 $1,000
8/19/2015 3,063 2,114 949 $
8/20/2015 2,607 1,954 653
8/24/2015 635
115 520
$35,020 $20,828 $ 14,192
AmountReceipted AmountDeposited
(A)Itisassumedallchecksweredepositedeventhoughitshowsanegativebalanceof$720.Thisisduetocodingerrorsonthe
receipts(i.e.,acheckreceiptwasaccidentlyrecordedasacashreceipt.)
21
EXHIBIT7
DEMINGPUBLICSCHOOLS
SCHEDULEOFFINDINGSANDRESPONSES
OCTOBER16,2017

Finding# FindingDescription(MaterialWeaknesses)
PotentialFraud,Forgery,EmbezzlementandNon
2017001F
Compliance
AdministrationsFailuretoReportMissingDepositsand
2017002F
TakePersonnelActionTimely
PotentialFinancialStatementFraudandLackofControls
2017003F
overJournalEntries
Unknown,Unallocated,andNegativeActivityFunds
2017004F
Balances
2017005F PotentialLarcenyofDonationsforCharitableCauses
2017006F LackofSegregationofDutiesoverActivityFunds
IncompleteandUntimelyActivityFundBank
2017007F
ReconciliationsandComminglingwithGateReceipts
FailuretoReconcileActivityFundsandReportAccurate
2017008F
BalancestoSponsorsandTeachers
InadequateControlsoverActivityFund'sCashReceiptsand
2017009F
Collections
IrregularCashReceiptsforMoneyCollected,Formof
2017010F
Receipts,LackofControlsoverReceiptBooks
InadequateInternalControlsoverActivityFund'sCash
2017011F
Disbursements,Purchases,andAccountsPayable
AccountBalancesNotRollingForward/DistrictsGeneral
2017012F
LedgerSoftware
District'sFinanceandAuditCommitteesoftheBoardof
2017013F
EducationMonitoringandCorrectiveActions
District'sCentralOfficeSuperintendentandFinance
2017014F DepartmentMonitoring,RiskAssessmentandCorrective
Actions
District'sSchoolPrincipalsMonitoringandCorrective
2017015F
Actions,PrincipalTurnover,andStaffEvaluations
InsufficientAccountingRecords,DocumentRetention,
2017016F
InspectionofPublicRecordsAct
LackofEstablishedPracticesfortheIdentification,
2017017F
MitigationandMonitoringofRisks
LackofControlsoverCompliancewiththeAntiDonation
2017018F
ClauseoftheNMStateConstitution
2017019F OtherRisksIdentifiedduringtheForensicProcedures
22
EXHIBIT7
DEMINGPUBLICSCHOOLS
SCHEDULEOFFINDINGSANDRESPONSES(CONTINUED)
OCTOBER16,2017

JaramilloAccountingGroupLLC(JAG)doesnotconcludeontheguiltorinnocenceofanyparty.Thispotential
fraud,forgery,embezzlement,abuseand/orpotentialviolationsofcriminalstatuteinconnectionwithfinancial
affairswillrequirefurtherinvestigationbytherelevantofficesandauthorities.Wealsorealizethatthenextstep
thatfollowsthisletterisapotentialreferralbytheNewMexicoStateAuditortotheproperprosecutingofficer,
afurtherinvestigationbylawenforcement(whichincludestheDistrictAttorneysOffice),yieldingtheirconclusions
on these matters. We raise these matters for future consideration and draw no legal conclusions nor reach
ultimatefindings.
2017001FPotentialFraud,Forgery,EmbezzlementandNonCompliance
CONDITION
Insummary,fromtheinformationtheDistrictprovidedandinterviewsweperformed,itappearsthattheDeming
HighSchool(DHS)formerHeadSecretarymayhavecommittedfraudbymisappropriation,larceny,forgery,and
embezzlement of District activity funds (potentially misappropriating with a skimming scheme approximately
$130,000 during the fouryear time period we were engaged to examine, calculated from the information
availableonlyoncertainrevenuestreamswewereengagedtoexamine)andnoncompliancewithstatestatutes,
NMPublicEducationDepartmentregulations,andDistrictpoliciesandprocedures.SeeSummaryatExhibit2.
CRITERIA
NM State Audit Rule 2.2.2.10 (K)(2). Pursuant to Section 1266 NMSA 1978 (criminal violations), an agency
[District]orIPA[externalauditor]shallnotifythestateauditorimmediately,inwriting,upondiscoveryofany
violationofacriminalstatuteinconnectionwithfinancialaffairs.Thenotificationshallincludeanestimateofthe
dollaramountinvolvedandacompletedescriptionoftheviolation,includingnamesofpersonsinvolvedandany
actiontakenorplanned.Ifwarranted,thestateauditormaycauseanauditofthefinancialaffairsandtransactions
oftheagencyinwholeorinpartpursuanttoSection1263NMSA1978and2.2.2.15NMAC.Ifthestateauditor
doesnotdesignateanagencyforaudit,anagencyshallfollowtheprovisionsof2.2.2.15NMACwhenentering
intoaprofessionalservicescontractforaspecialaudit,performanceauditorattestationengagementregarding
thefinancialaffairsandtransactionsoftheagencyrelatingtofinancialfraud,wasteandabuse.
If any information comes to our attention (regardless of materiality) indicating any fraud, illegal acts,
noncompliance,oranyinternalcontroldeficiencies,suchinstancesmustbedisclosedinthereportasrequiredby
Section1266NMSA1978.Additionally,theexternalauditorsconsiderationoffraudinafinancialstatement
auditincludesreportingtomanagementand/orgovernanceanyevidencethatfraudmayexist.
NMSA1978Section10163(A).Alegislatororpublicofficeroremployeeshalltreatthelegislator'sorpublic
officer'soremployee'sgovernmentpositionasapublictrust.Thelegislatororpublicofficeroremployeeshalluse
thepowersandresourcesofpublicofficeonlytoadvancethepublicinterestandnottoobtainpersonalbenefits
orpursueprivateinterests.
NMSA197830166.Fraudconsistsoftheintentionalmisappropriationortakingofanythingofvaluewhich
belongstoanotherbymeansoffraudulentconduct,practicesorrepresentations.
NMSA197830161.Larcenyconsistsofstealinganythingofvaluethatbelongstoanother.

23
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017001FPotentialFraud,Forgery,EmbezzlementandNonCompliance(Continued)
NMSA1978Section30168.Embezzlementconsistsoftheembezzlingorconvertingtohisorherownuseof
anythingofvaluewithwhichheorshehasbeenentrusted,withfraudulentintenttodeprivetheownerthereof.
NMSA1978Section301610.Forgeryconsistsof:A)falselymakingoralteringanysignatureto,oranypartof,
any writing purporting to have any legal efficacy with intent to injure or defraud; or B) knowingly issuing or
transferringaforgedwritingwithintenttoinjureordefraud.Legalefficacyisawritingwhichcouldbemade
thefoundationofliabilitythatwouldapparentlyoperatetothelegalprejudiceofanother.Weusuallythinkof
forgeryasalteringadocumentforfinancialgainbutitcanalsobeanydocumentrequiredbylawtobefiledor
necessarytothedischargeofapublicofficialsduties.
NMSA1978Section30233.Makingorpermittingfalsepublicvoucherconsistsofknowingly,intentionallyor
willfullymaking,causingtobemadeorpermittingtobemade,afalsematerialstatementorforgedsignature
uponanypublicvoucher,orinvoicesupportingapublicvoucher,withintentthatthevoucherorinvoiceshallbe
relieduponfortheexpenditureofpublicmoney.Whoevercommitsmakingorpermittingfalsepublicvoucheris
guiltyofafourthdegreefelony.
NMSA 1978 30261. Interfering with Public Records consists of knowingly altering any public record without
lawfulauthority..destroying,concealing,mutilatingorremovingwithoutlawfulauthorityanypublicrecordor
publicdocumentbelongingtoorreceivedorkeptbyanypublicauthorityforinformation,recordorpursuantto
law.
NMSA197822837.Publicschoolfunds:Exceptformoneyreceivedforacafeteriaorforanactivityfund,all
moneyforpublicschoolpurposesdistributedtoaschooldistrict,orcollectedbyacounty,schooldistrictorpublic
schoolauthoritiesforaschooldistrict,shallbedeliveredtoandkeptbyacountytreasureroraboardoffinance
ofaschooldistrictinfundsapprovedbythedivision.Disbursementsfromthesefundsshallonlybemadefor
matured debts by voucher and warrants or checks of the local school board. In no event shall any money be
expendedordebtsincurredexceptasauthorizedbythePublicSchoolFinanceAct.Moneyforacafeteriaorfor
anactivityfundshallbedepositedinabank,orinasavingsandloanassociationwhosedepositsareinsuredby
anagencyoftheUnitedStates,ormaybedepositedinacreditunion,aslongasthecredituniondepositisinsured
byanagencyoftheUnitedStates,approvedbythelocalschoolboard.Thelocalschoolboardmaydepositany
cafeteriafunds,anyactivityfundsoranyotherfundsinoneor moreaccountswithanysuchbankorinsured
savingsandloanassociationinits county,butnolocalschoolboard,inany officialcapacity,shalldepositany
cafeteriafunds,anyactivityfundsoranyotherfundsinanyonesuchsavingsandloanassociationtheaggregate
ofwhichwouldexceedtheamountoffederalsavingsandloaninsurancecorporationinsuranceforasinglepublic
account.Asusedinthissection,"deposit"includesshare,sharecertificateandsharedraft.
DistrictPolicy2031StandardsofProfessionalConduct.TheDemingBoardofEducationacknowledgesthatethical
valuesamongstudentscannotexistwithoutmoralvaluesamongeducators.TheBoardofEducationistherefore
committedtoacodeofprofessionalconductandunderstandsthatitprovidesminimallyacceptedstandardsof
professionalconductineducation.DutytotheProfession;Theeducationalprofessionhasbeenvestedbythe
publicwithanawesometrustandresponsibilitythereforealleducatorswithintheDemingPublicSchools:I.Shall
avoidconductconnectedwithofficialdutiesthatisunfairorisimproper,illegalorgivestheappearanceofbeing
improperorillegal.
24
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

DistrictPolicy2021EducatorCodeofEthics.TheDemingPublicSchoolsBoardofEducationexpectsallstaffto
instillthehighestethicalstandardsinthestudentsand,therefore,expectsemployeestomodelthehighestethical
standards.MembersoftheinstructionalandadministrativestaffsoftheDemingPublicSchoolsareexpectedto
conductthemselvesaccordingtotheprofessionalstandardsestablishedintheCodeofEthicsfortheeducational
profession.
DistrictPolicy500BusinessPolicyStatement.TheDemingSchoolsBoardofEducationrecognizesthatresources
andresourcemanagementcomprisethefoundationalsupportoftheschoolsystemanditseducationalprograms.
TheBoardofEducationexpectstheoperationandmaintenanceofschoolfacilitiesandequipmenttosethigh
standardsofsafety,topromotethehealthofpupilsandstaff,toreflecttheaspirationsofthecommunity,andto
supporttheeffortsofthestafftoprovidesoundeducationalopportunities.Tomakethatsupportaseffectiveas
possible,theBoardwill:
1.encourageadvanceplanning;
2.exploreallpracticalsourcesofdollarincome;
3.guidetheexpenditureoffundsinordertoextractthegreatesteducationalreturns;and
4.expectqualityaccountingandreportingprocedures.
EFFECT
AllegationsoffraudcausesadecreaseinpublictrustoftheDistrict.Thereispotentiallyfraudandembezzlement
ofpublicfundsthattaxpayers,teachers,parents,staff,andstudentsworkedhardtoobtainfortheirSchools,other
entitiesandindividuals.Also,theremaybeadditionalcostsasothersmayberequiredtofollowuponcertain
aspectsofthepotentialfraud.
CAUSE
TheDistrictsinternalcontrolsandaccountabilitywerenotstrongenoughtoprevent,detect,andstopcontinued
fraudorerrors.
RECOMMENDATION
WerecommendtheBoardofEducation,theAuditandFinanceCommittees,Administration,Principals,andother
staffassessriskandputintoplacestrongcontrolsandaccountabilitytopreventanddetectanyfuturefraudor
noncompliance.
MANAGEMENTRESPONSE
Corrective Action(s): The Finance department, in conjunction with the audit committee, will conduct periodic
auditsoftheDistrictsactivityfunds.Theseauditswillincludeexaminationofdepositstodeterminecompliance
withstatestatuteandBoardpolicyaswellasinterviewswiththeactivitysponsorstodeterminethatbothdeposits
andexpendituresareaccountedforappropriately.
The Finance department will conduct annual financial trainings with directors, principals and secretaries. The
FinancedepartmentwillalsoworkwiththeSuperintendenttoimplementpoliciesoninternalcontrolandcash
handlingofactivityfundsinFY18.
25
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

Additionally, both the Finance department and the Superintendents office will work to develop a culture of
compliancewiththelawandahighethicalstandard.
ResponsibleParty:ExecutiveDirectorofFinanceandSuperintendent
Due Date of Completion: Training with principals and directors has been ongoing beginning August 2017. A
processforregularmonitoringdepositshasbeenimplementedtoensurecompliancewithstatestatuteandboard
policy.Intheeventtheindividualisnotincompliance,theappropriateindividualsarenotifiedifadepositisnot
madewithin24hours.Iftheproblempersists,theSuperintendentwillbenotifiedtodetermineifdisciplinary
actionisnecessary.Additionally,twopeoplearerequiredtobepresentwhenanymoneyisbeingcounted.
26
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017002FAdministrationsFailuretoReportMissingDepositsandTakePersonnelActionTimely
CONDITION
Our procedures uncovered that the former Administration (including the former: DHS Principal, Business
Manager,CFO,andAssistantSuperintendent)reportedlyknewaboutmissingdepositsovertheyearsanddidnot
taketimelypersonnelactionorreporttheillegalactivities, duringwhichtimetheformerDHSHeadSecretary
allegedlyskimmedmorefundsfromthehighschool.TheformerHeadSecretarywasallowedtocatchupon
smalldepositswhenshegotbehindeachmonth.Ultimately,sheresignedinJuly2016foranotherposition,
allowedtocompletehercontractthroughAugust2016,eventhoughthetheftofComputerFeesalone(estimated
loss to be in the range of $16,000 $25,000) was reportedly discovered and known by the former Assistant
SuperintendentandtheformerBusinessManagerinoraroundSeptember2015.Duringourinterviewsofthe
formerCFOandAssistantSuperintendent,theydidnotaccuratelyanswerwhentheyfirstknewaboutthefraud.
Thecatchingupallowedovertheyearswasonlyforthesmalldepositswhichshehadactuallyrecordedintothe
Districtsaccountingsystem(G/LorTriadic)andhadnotdepositedintothebank.Mostmissingfundsshedid
notrecordintoTriadicandwouldnothavebeenheldaccountabletoreimburse.Itwasreportedtousthatthe
wayshecoulddothiswasbytellingpeopletocomebackforreceiptslaterorthatTriadicwasdown.Inatleast
oneinstance,shedeniedreceivingthefundsatallfromanemployeeandrefusedtoissueareceipt.Balance
reportssheissuedtoteachers/sponsorswereinaccurate,morelikeasecondsetofbooks,anddidnotreflect
whathadbeenrecordedintotheG/Lordepositedintothebankaccount.
FormerAdministrationdidnotinformtheAuditCommittee,theBoardofEducation,theNMStateAuditorsOffice
(OSA),orlawenforcementtimely.Itisourunderstandingthatthesituationwasonlyreportedaftertheformer
audit firm communicated to the former CFO that this alleged fraud must be reported. The former Assistant
SuperintendentreportedtheinstancetoOSAonAugust26,2016,butwasreportedtohaveknownofmaterial
missingdepositssinceinoraroundSeptember2015.
CRITERIA
NMStateAuditRule2.2.2.10(K)(2).
NMSA1978Section10163(A
DistrictPolicy2031StandardsofProfessionalConduct.
DistrictPolicy2021EducatorCodeofEthics.
DistrictPolicy290ReportingIllegalorImproperConduct.TheDemingBoardofEducationaffirmsitscommitment
to adherence to proper and legal conduct by all employees of the Deming Public Schools. As part of this
commitment, the Board requires that an employee who has reliable information that another employee is
engaging in illegal or improper conduct shall report such information to an appropriate supervisor or
administrator. The district shall hold the employee making the report safe from any retaliation, unless the
employeeactedinbadfaithorwithmaliciouspurpose.Anyemployeewhoretaliatesagainstanemployeewho
makesaproperreportofillegalorimproperconductshallbesubjecttodiscipline.Itisthedutyofappropriate
administrativeofficialstoinvestigateanyreportofillegalorimproperconductbyanemployee.Theemployee
makingthereporthasnotdutytoinvestigate,butshallcooperatewiththeinvestigatingadministrator(s).During
theinvestigation,theoriginatingreportshallbeheldconfidential,consistentwiththerequirementsofaneffective

27
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017002FAdministrationsFailuretoReportMissingDepositsandTakePersonnelActionTimely(Continued)
investigation.Upontheconclusionoftheinvestigation,adeterminationshallbeissued.Ifthecharge(s)ofillegal
orimproperconductissupportedbytheinvestigation,appropriatedisciplinaryactionshallbetakenincluding,
but not limited to, warning or reprimand, suspension, termination or discharge, subject to any applicable
proceduralrequirements.
EFFECT
TherewereadditionalfundsallegedlymisappropriatedafterthetimeCentralOfficeandDHSPrincipalreportedly
knewoftheirregularitiesandredflags.
CAUSE
ItwasreportedmultipletimestousthattheformerDHSHeadSecretarywasalwaysprotectedbytheformer
DHS Principal and that the former DHS Head Secretarys sister was the Secretary to the former Assistant
Superintendent. Administration ostensibly did not act ethically with accountability timely upon discovery of
missingdeposits.
RECOMMENDATION
staffshouldassessriskandputintoplacestrongcontrolsandaccountabilitytopreventanddetectanyfuture
fraudornoncompliance.Itisvitalthattheculturereportedtousofsweepingthingsundertherugischanged
andthathighethicalstandardsareexpectedandmonitoredwithtimelyandstrongstaffevaluations.
MANAGEMENTRESPONSE
CorrectiveAction(s):Aprocesstoregularlymonitortimelinessofdepositshasalreadybeenimplemented.The
finance department regularly monitors deposits for compliance with state statute and board policy. The
appropriate individuals are notified if a deposit is not made within 24 hours. If the problem persists, the
Superintendent will be notified to determine if disciplinary action is necessary. Additionally, the Finance
DepartmentwillworkwiththeSuperintendenttodeterminewhenandifindividualswilllosetheabilitytodo
certainthings(collect/depositcash,createpurchaserequisitions,etc.)Theactivitysponsorswillreceivereports
showingactivitysotheycanconfirmallmoneywasdepositedandexpendituresarecorrect.
TheFinancedepartmentandtheSuperintendentsofficewillworktodevelopacultureofcompliancewiththe
lawandahighethicalstandard.
ResponsibleParty:ExecutiveDirectorofFinanceandSuperintendent
DueDateofCompletion:TheprocesstomonitortimelinessofdepositswasimplementedinOctober2017.
28
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017003FPotentialFinancialStatementFraudandLackofControlsoverJournalEntries
CONDITION
Duringthecourseofourengagement,wealsodiscoveredpotentialfinancialstatementfraud.TheformerCFO
and Business Manager would post journal entries at each yearend to correct the negative balances in the
activityfundssotheauditorswouldnotgivethemafinding,andthenreversetheentriesafteryearend.The
negativebalanceswereneveraddressedandthejournalentrieswerenotvalid.Therewerealsotimesthatactual
funds (not just journal entries) were moved using District checks from one bank account to another to cover
negativebalances.Thesetransferswerenotauthorizedbytheteachers,students,orsponsorswhohadraised
thefundsfortheoriginalpurposes.
ThefollowingareexamplejournalentriesbyClassmadetocorrectnegativebalancesduringvariousyearsinour
scope:
Account Adjustment
WildcatRecognition $6,287
PAC/PTO 1,749
AgMechanics 1,548
HSBusinessLabFees 665
TechLabFees 948
HSHomeEcLabFees 3,305
Arts&CraftsK 237
HomeEcP 1,107
Ourproceduresindicatetheseaccounts(amongothers)becamenegativeasaresultofbeingallowedtospend
morethantherevenueforthatclass/account.
ThefollowingareexamplejournalentriesandtransfersmadeinTotaltocorrectnegativebalances:
6/30/2014;GeneralLedgerFund22000;JournalEntrytoSuppliesfor$21,751andacorrespondingcashdeposit
intotheGateReceiptsbankaccountforthesameamounton6/27/2014.
6/30/2015;GeneralLedgerFund22000;JournalEntrytoR/EJLeupold(AthleticTrainer50%salary)for$18,000
andacorrespondingcashdepositintotheGateReceiptsbankaccountforthesameamounton6/29/2015.
6/30/2016;GeneralLedgerFund22000;JournalEntrytoR/EJLeupold(AthleticTrainer50%salary)for$24,000;
however,acorrespondingcashdepositintotheGateReceiptsbankaccountwasnotmade,leavingtheaccount
short.
CRITERIA
Financialstatementsorfinancialreportsareconsideredtoolsuponwhichuserscanrelywhenmakingdecisions.
Hence,financialstatementsshouldbe freefromanymisleading information, and mustbe ofhighqualityand
reliableinordertosafeguardtheinterestsofthepublic.Fraudmaybecommittedinmanyways,includingby
falserepresentation,failingtodiscloseinformation,orabuseofposition.

29
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017003FPotentialFinancialStatementFraudandLackofControlsoverJournalEntries(Continued)
NMStateAuditRule2.2.2.10(K)(2).
NMSA1978Section10163(A).
NMSA197830166.
NMSA1978Section301610.
NMSA197830261.
DistrictPolicy2031StandardsofProfessionalConduct.
DistrictPolicy2021EducatorCodeofEthics.
EFFECT
AllegationsoffraudcausesadecreaseinpublictrustoftheDistrict.Thereispotentiallyfraudandembezzlement
ofpublicfundsthattaxpayers,teachers,parents,staff,andstudentsworkedhardtoobtainfortheirSchools,other
entitiesandindividuals.Also,theremaybeadditionalcostsasothersmayberequiredtofollowuponcertain
aspectsofthepotentialfraud.
CAUSE
Reportedly,theformerCFOandBusinessManagerwantedtoavoidanauditfinding.
RECOMMENDATION
fraudornoncompliance.
MANAGEMENTRESPONSE
CorrectiveAction(s):Prioradministrationspostedjournalentrieseliminatingnegativebalancesoftheactivity
fundswhichmisrepresentedtheactivityfundbalancestothefinancialstatementusersaswellastheboard.An
approvalprocessforpostingjournalentrieshasalreadybeenimplemented.Thisprocessincludesthesignature
of the preparer and reviewer (must be either executive director of finance or controller) and all appropriate
backup as well as an explanation of the journal entry. The finance department is now confirming funds are
availablepriortoapprovalofpurchaserequisition.
ResponsibleParty:ExecutiveDirectorofFinanceandController
DueDateofCompletion:AnapprovalprocessforpostingjournalentrieswasimplementedinJuly2017.
30
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017004FUnknown,Unallocated,andNegativeActivityFundsBalances
CONDITION
Duringourtesting,wenotedthatasofJune30,2016,therewas$(167,465)ofunallocatednegativecashthat
couldnotbeidentifiedtospecificclassesoractivitiesintheauditedfinancialstatements.
DuringourtestingofG/Lreports,therewereunknowndifferencesintherollforwardofbalancesfromtheend
ofonefiscalyeartothebeginningofthenextfiscalyear.ThisisdescribedmoreinFinding2017012Fbelow.
ReportspulledfromtheG/Lshowsignificantnegativecashbalancessuchas:
Fund23000SomeNegativeBalancesasofJune30,2017
COCarlPerkins;nowBuildingTrades $32,012
BataanStudentCouncil 6,879
Cheerleaders 6,597
COtitleI 5,733
THOMASMAINEESTATEDONATION 5,356
WILDCATPRIDE 4,060
Enrichment 3,985
ColumbusActivity 3,923
TRACK 1,694
GirlsSoccer 1,201
CopyCenter 583
OFFICEFUND 510
DHSSummerSchoolDANA 388
JrHighOffice 249
DMSTEAMS 103
HonorSociety 100
$73,373
ReportsfromTriadicforFund90000alsoshowanegativedifferenceof$(132,861)fromwhattheJune30,2017
endingbalanceisintheG/Lcomparedtothecalculatedbalancesrollingbeginningbalancesfromtheprioryear
pluscashreceiptslesscashdisbursements.
CRITERIA
NMSA1978Section6102Publicmoney;cashbooks;dailybalance;publicrecord.Itisthedutyofeverypublic
officialoragencyofthisstatethatreceivesordisbursespublicmoneytomaintainacashrecordinwhichisentered
daily,indetail,allitemsofreceiptsanddisbursementsofpublicmoney.Thecashrecordshallbebalanceddaily
soastoshowthebalanceofpublicmoneyonhandatthecloseofeachdaysbusiness.Exceptasmaybeotherwise
providedbylaw,thecashrecordisapublicrecordandisopentopublicinspection.

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EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017004FUnknown,Unallocated,andNegativeActivityFundsBalances(Continued)
NM Public Education Department (PED) Manual of Procedures PSAB Supplement 18 Student Activity &
Athletics.Noactivityfundaccountshalleverbepermittedtoincuradeficit.Financialrecordsofstudentactivity
funds must be in accordance with generally accepted accounting principles and an adequate internal control
structureestablishedandmaintained,aswellasaudittrails,inthesamemannerastheschooldistrictsregular
funds.
EFFECT
Therearenotthefundsavailabletomakeeachclassandactivitywhole.Itisnotallowabletoprovideoperational
publicfundstooutsideindividualsorentities;therefore,itisunknownhowthebalanceswillberestored.
CAUSE
It was practice for many years to reclassify certain cash balances with journal entries which removed certain
negative cash balances; however, the individual classes or activities were not told their cash balances were
negative.
RECOMMENDATION
fraudornoncompliance.
MANAGEMENTRESPONSE
CorrectiveAction(s):Thecurrentadministrationisworkingdiligentlywithprincipalsandtheactivitiesofficeto
determine appropriateness of balances and ensure that all deposits and expenditures are accounted for
appropriatelyandthatdeficitbalancesintheactivityfundstonotoccur.Thefinancedepartmentisalsocollecting
dataonthepurposeofeachoftheaccountstoensureproperclassificationofrevenueandexpenditures.
DueDateofCompletion:Thisprocesshasalreadybeenimplementedandisongoing.
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2017005FPotentialLarcenyofDonationsforCharitableCauses
CONDITION
Throughourforensicwork,wesawevidenceanditwasreportedtousthattheformerDHSHeadSecretarywas
collecting funds for individuals and organizations and these funds were not always properly donated to the
intended recipients. More details are presented in the Report of Consulting Procedures, which precedes this
Exhibit.TheDistricthasapolicythatallcharitablefundraisersmustbeapprovedbytheBoardofEducationvia
applicationthroughtheSuperintendent.However,thispolicywasnotenforcedandthefundswerereportedly
neversubmittedtotherecipientsinseveralinstances.DHSstaffdidnothavetherequiredpermissionfromthe
Boardtosolicitthesedonations.Additionally,theformerDHSHeadSecretaryandtheformerDHSPrincipalstated
thatshedepositedthefundsintotheDistrictsbankaccountandthenaDistrictcheckwouldbeissued;however,
thisallegedlydidnotoccurinseveralinstances.Theamountsnotdepositedorgiventotherecipientswerenot
determined,asinformationprovidedtouswaslimited.
CRITERIA
DistrictPolicy248SolicitingandSellingbyEmployees.TheDemingBoardofEducationwillnotsanctiondistrict
widecharitablefundraisingdrives;however,applicationmaybemadetotheSuperintendentsofficeforBoard
approvalofsuchadriveinspecialcircumstances.
District Policy 519 Allowable and Unallowable Expenditures. Charitable contributions to individuals and
organizations, including nonprofits, are generally prohibited. The contributions may be allowable if they fall
withinoneoftheexceptionsofthesocalledAntiDonationClauseinArticleIX,Section14oftheNewMexico
Constitution. Under the AntiDonation Clause, the District is generally prohibited from making charitable
contributionstononstateentities.
EFFECT
TheintendedrecipientsofdonationsfromDPSemployeesmaynothavereceivedthem.
CAUSE
Theft of collections is a common fraud scheme, since wellmeaning individuals want to help causes and trust
peopletodotherightthinginsubmittingtheirdonationstoorganizations.
RECOMMENDATION
staffshouldreiteratethepolicytoallemployeesandthenmonitorcompliance.
MANAGEMENTRESPONSE
Corrective Action(s): The Finance department will reiterate District Policies 248 Soliciting and Selling by
Employees and 519 Allowable and Unallowable Expenditures at the annual finance training. The finance
departmentwillmonitorforcompliancebyreviewingdepositsandexpendituresofactivityfunds.
DueDateofCompletion:Thesepolicieswillbereiteratedattheannualfinancetraining.
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EXHIBIT7
DEMINGPUBLICSCHOOLS
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2017006FLackofSegregationofDutiesoverActivityFunds
CONDITION
Whilereviewingthepolicies,proceduresandinternalcontrolsprocessesinplaceatDHS,weascertainedthatthe
sameperson(formerDHSHeadSecretary)whoreceivedthecashreceiptsalsomadethedepositsintothebank
accounts.Thesamepersonthatreceivedthegoodsorservicespurchasedordelivered,initiatedPOsandobtained
thePrincipalssignature.ThereisalackofcontrolsinplacetoensureseparationofdutiesatDHS.Thislackof
checksandbalancesallowedtheformerDHSHeadSecretarytomaintainasecondsetofbooksandseemingly
misleadhercoworkers,superiors,students,andsponsors.
CRITERIA
A strong system of controls requires separation between custody of assets, recording of transactions and
authorizationoftransactions.Ifasmallnumberofemployeesdoesnotallowforproperseparationofduties,deep
supervisoryreviewsshouldbeusedtocompensateforthelackofseparationofduties.
New Mexico PED PSAB Supplement 2 Internal Control Structure CONTROL ACTIVITIES AND PROCEDURES.
Controlactivitiesaretheinternalpoliciesandproceduresthathelpensuredistrictdirectivesarecarriedout.These
policiesandprocedureshelpensurenecessaryactionsaretakentoaddressriskstoachievingtheschooldistricts
objectives.Theyincludearangeofactivitiesasdiverseasapprovals,authorizations,verifications,reconciliations,
review of operating performance, security of assets, and segregation of duties. Control procedures are those
processesinadditiontothecontrolenvironmentandaccountingsystemthatthedistrictorcharterschoolhas
established to provide reasonable assurance that specific school district objectives will be achieved. Control
procedureshavevariousobjectivesandareappliedatvariousorganizationalanddataprocessinglevels.They
mayalsobeintegratedintospecificcomponentsofthecontrolenvironmentandtheaccountingsystem.PSAB
Supplements7through14addressdefinedprocessesforthesubjectofeachSupplementcoupledwithasample
RiskAssessmentAnalysisworksheetforeachprocess.
CentralFocusPointsare:AssessRisk&DetermineNeeds,Monitor&Evaluate,PromoteAwareness,andImplement
PoliciesandControls.Certainbasicinternalcontrolstructureconceptswillnotvaryfromoneschooldistrictto
thenext(6.20.2.11,NMACInternalControlStandards).Eachschooldistrictwilldevise,establishandmaintaina
written structure of internal administrative and accounting controls to provide: Segregation of responsibilities
whichisalsoknownasdivisionofdutiesshallbeestablished andimplemented. The three maindutiestobe
segregatedaretheauthorizationtoexecuteatransaction,therecordingofthetransaction,andthecustodyof
assetsinvolvedinthetransaction.Asystemofauthorizationandrecordingproceduresshallbeadoptedbythe
localschoolboardandimplementedbytheschooldistrict.
Athletics.
EFFECT
Potentialtheftanderrorsremainedundetectedsincepropercontrolsarenotinplaceovercashreceipts.
CAUSE
Therewasalackofreview,reconciliation,andaccountabilityforcashreceiptsatthehighschool.
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EXHIBIT7
DEMINGPUBLICSCHOOLS
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2017006FLackofSegregationofDutiesoverActivityFunds(Continued)
RECOMMENDATION
Although the Schools have limited administrative staff, steps could be taken to separate incompatible duties
betweentheSchoolsofficesandCentralOffice.Thebasicpremiseisthatnoonepersonshouldhaveaccessto
bothphysicalassetsandtherelatedaccountingrecordsortoallphasesofatransaction.
FortheCashReceiptstransactioncycle,thereshouldbeadequatesegregationofdutiesamongthosewho:
Collectaccountsreceivable
Openthemailorcopychecksreceived
Preparedeposits
Comparethelistingofreceiptsreceiveddailytothebankreceiptofdailydeposit
Postcashreceiptstotheactivityfundssubledgers(byPTO,Students,Teachers,etc.)
Reviewtheactivityfundreconciliations
Authorizewriteoffsoradjustments
Independentlyinvestigatediscrepanciesorissuesrelatedtorevenue
Processstaff/parentcallsandcomplaints
Reconcilebankaccounts
Performsurpriseaudits

FortheCashDisbursementstransactioncycle,thereshouldbeadequatesegregationofdutiesamongthosewho:
Review,authorize,orsignchecks
InitiatechecksforexpendituressuchasPurchaseRequisitionsandPurchaseOrders
Preparechecks
Mailchecks
Orderchecks
EdittheVendormasterfile
Independentlyinvestigatediscrepanciesorissuesinvolvingexpenditures
ProcessstaffandVendorcallsandcomplaints
Openthemailorcopychecksreceived
Receiveinvoicestobepaid
Performsurpriseaudits
Havingdutiesandevenmoreimportantlyaccesstothedifferentareasinaparticulartransactioncycleseparated
withstrongindependentreviewsiscriticaltopreventanddetectfraudanderrors.
MANAGEMENTRESPONSE
CorrectiveAction(s):Thefinancedepartmentwillcontinuetoconductfinancialtrainingswithdirectors,principals
andsecretaries.Thedistrictwillalsoimplementapolicyregardinginternalcontrolsandhandlingofactivityfund
cash.
ResponsibleParty:ExecutiveDirectorofFinance
DueDateofCompletion:FinancialtrainingwasconductedinAugust2017andwillcontinuethroughouttheyear.
Trainingwillalsobeconductedonanindividualbasisasdeemednecessary.
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EXHIBIT7
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2017007FIncompleteandUntimelyGeneralActivityFundBankReconciliationsandComminglingwithGate
Receipts
Condition
TheDistrictcouldnotprovideacompletelistingofcashreceipts(anaccountingtermwhichincludesallforms
ofpayments)ordocumentationtosupportreviewandapprovalofDHSrevenues.Veryfewcashreceiptstickets
could be matched to bank statement deposits. Many cash receipts (funds collected) were never captured as
depositsandneverrecordedasrevenueintheactivityfundreconciliationspreparedforaudit.TheCentralOffice
andDHSPrincipaldidnotcomparerevenuestofundraisers,fees,andevents.Whencertainteachersorsponsors
comparedtheirexpectedrevenues,theywerereasonablebecausetheformerDHSHeadSecretaryprovidedthem
withasecondsetofbooksshowingthembalancestheyexpected.Thesespreadsheetsdidnotagreetothe
activityfundreceiptssubmittedtoCentralOfficethroughTriadic.
Cash receipts were not properly reconciled to the general ledger. Activity funds were commingled in three
accountingfunds(22000,23000,and90000),threebankaccounts(GeneralActivitiesandGateReceiptsand
Operational),andhundredsofObjectandClasscodesinTriadic.Wewereunabletotracecashreceiptsfrom
thepointofcollectionthroughtheaccountingrecords(cashreceiptsticketstoG/LtoBank),butwereableto
reconcilethesefundsintotalinExhibit5.
CRITERIA
Bestpracticesdictatethatbankreconciliationsshouldbeperformedmonthlyinordertoenhancetimelinessof
thefinancialinformationaswellastimelyauthorizationofcorrectionsnecessary.TofullycomplywithNMState
Statutes,theDistrictmustprovidecompletebooksandrecordsforaudit.
NMSA1978Section6102
DistrictPolicy248SolicitingandSellingbyEmployees.
DistrictPolicy290ReportingIllegalorImproperConduct.
NewMexicoPEDPSABSupplement2InternalControlStructureCONTROLACTIVITIESANDPROCEDURES.
NMSA1978Section1425.InspectionofPublicRecordsAct(IPRA)indicatesthatthepublicisentitledtothe
greatestpossibleinformationanddocumentsaretobemadeavailabletothepublic.
DistrictPolicy521DailyCashDeposits.Moneyreceivedbyallschoolsandorganizationsshallbereceiptedand
deposited in the bank within twentyfour (24) hours or one banking day. he bank deposit slip shall have the
numbersfromapplicablereceiptsenteredonitorattachedasareference.
Stronginternalcontrolsrequirereviewandapprovalsthroughoutaccountingprocesses.Thisincludessegregation
of duties for receiving, depositing and posting receipts. A thorough review and approval of all deposits and
retentionofrelateddocumentationisessential.
Control Environment Attitudes, awareness, and actions of management, as well as those charged with
governance, demonstrate the Districts commitment to accurate accounting and financial reporting and
compliancewithprovisionsoflaws,regulations,contract,andgrantagreementsrelativetofederalprograms.The
Districtshoulddemonstrateacommitmenttointegrityandethicalvalues.Thegoverningbodymustdemonstrate

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EXHIBIT7
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Receipts(Continued)
independence from administration in exercising oversight of the development and performance of internal
controloverfinancialreportinganditscompliancewithlaws,regulations,andtheprovisionsofcontractsorgrant
agreements relative to federal award programs. With governing body oversight, administration establishes
structures, reporting lines, and appropriate authorities and responsibilities to achieve financial reporting
objectivesandcomplianceobjectivesrelativetomajorprograms.TheDistrictshoulddemonstrateacommitment
to attract, develop, and retain competent individuals in alignment with financial reporting objectives and
complianceobjectivesrelativetomajorprograms.TheDistrictmustholdindividualsaccountablefortheirinternal
controlresponsibilitiesandcomplianceobjectivesrelativetomajorprograms.
EFFECT
The lack of strong controls surrounding receipts greatly increases the risk for misappropriation of funds that
shouldbeforthebenefitoftheSchools.
CAUSE
TheDistrictdidnothavesufficientcontrolsovercashreceiptsandactivityfunds.
RECOMMENDATION
TheDistrictmustdevelopandimplementstrongpoliciesandprocedurestoensurethatreceiptsareprocessed
completely, recorded accurately, and approved. Cash receipts are to be deposited intact (in the same form
received)promptlyorstoredinasecurelocationuntilthedailydepositismade.Nopettycashshouldbeusedor
changemadefromthereceipts.WerecommenddiscontinuinguseoftheDHSsafesincewasleftopenandno
one knows the combination. Receipts must be counted under dual control openly, not with closed doors or
before/after hours. All fundraisers must be properly approved, tracked, and reconciled to the bank account
receipts.JAGrecommendsthatCentralOfficebeinvolvedinalltheSchoolssignificant,materialfundraisersand
feecollections.Policyshouldbeapprovedtodelineatewhichfundraisersandfeecollectionsthiswouldapplyto.
Individualswhopreparedepositscannot:
Authorizerates,fees,charges
InitiatebillstobepaidtotheDistrict
Depositcashreceipts
Investigatediscrepanciesorissuesrelatedtocash

We recommend that procedures for transaction initiation and processing be formally documented as soon as
possible.Writtenprocedures,instructions,andassignmentsofdutieswillalsopreventorreducetheriskthat
unauthorizedtransactionscouldoccur,fundscouldbeinappropriatelyaccountedfor,andtransactionscouldbe
inaccuratelyrecordedandreported.
WerecommendtheDistrictperformactivityfundsreconciliationsonamonthlybasisandmakeanynecessary
correctionsatthetimeofreconciliation.Forfutureyears,allsupportingdocumentationforaccountsshouldbe
providedwiththereconciliations.
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Receipts(Continued)
JAG recommends that DPS consider the following items to strengthen internal controls over activity fund
reconciliationscompliancetopreventfraud,errors,ornoncompliancefromoccurringinthefuture:
Communicatefromthetopdowntheexpectationthatemployeeselevateinstancessuchasthisupthe
chainofcommandoreventoananonymoushotline.Thissituationmayhavebeenalleviatedifthosewho
observedredflagshadbroughttheurgencytoCentralOfficeoranotheragency,whocouldhaveinter
cededintheprocessandinitiateddiscussionswiththeemployeesooner.Employeesshouldbetrained
toreportanyredflagsorhunchesthatsomethingisnotright.
Qualitycontrolprocedures,perhapswithachecklist,shouldbecreatedforthosepreparingandreviewing
formerDHSHeadSecretaryswork.Thepersonperformingthequalitycontrolreview(someoneother
than the preparer or approver, independent of the process) will carefully check details such as dollar
amountsagreetothebankstatements,dates,fundraisers,copiesofreceipts,andotheritems.
Thereshouldbeconsequencesfornotfollowingdeadlines,jobrequirements,andcorrectiveactionplans.
Someofthemostimportantstepsaretotracktheprenumberedreceiptsandagreethemtothebank
statementsandagreethemtotherevenueactivities.
Requirethatallvendorcomplaintsgotoanindependentpersonnotinvolvedwiththeactivityfundsor
withAccountsPayables.
RequirethatallvendorinvoicesbesenttoCentralOffice.
ReportsoftheSchoolsactivityfundsreportsandbalancesbypurposeshouldbesharedbetweenallstaff
inacentrallocation,suchasanetworkdrive.Signoffsindicatingreviewoftheinformationshouldbe
includedwithsignaturesanddatesofapproval.Thedatamustbeupdateddailyasrequired.
Keypersonnel,includingformerDHSHeadSecretarysandtheirPrincipals,shouldhaveannualtrainingin
purchasing and procurement, internal controls, reconciling, safeguarding assets, Board of Education
policies, PED regulations, applicable NM State Statutes, District procedures, accountability, and the
consequencesforviolations.ThesevereramificationsstatedinSections131199and131196(NMSA
1978) for Procurement Code violations should be communicated to all employees. It is best that the
District develop and utilize handbooks and assist new hires to feel comfortable with their roles,
responsibilities,andtasks.
SomeDistrictsuseproceduressuchasthefollowing:
Reconciliation
1. Bankstatementsmustbereconciledassoonasreceivedeachmonth.
2. ActivityFundReportsaretobeturnedintoCentralOfficebythe10thofeachmonth(attention:Business
Manager)andshouldincludethefollowing:
ActivityFundCoverSheet
AccountSummary
CheckRegister
ReceiptRegister
OutstandingCheckList
BankStatement
BalanceSheet
(Ifforanyreasonyoucannotmeetthisdeadline,pleasenotifythefinancedepartment.)
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Receipts(Continued)

3. Receiptnumbersshouldbeaccountedforincludingvoidedreceipts.
4. Checknumbersmustbeaccountedforincludingvoidedchecks.
5. CentralOfficewillscheduleavisitwitheachschooltocheckprocedures,verifybalances,answerquestions,
makeanyadjustments,andverifythatdepositsequalreceipts.
6. If any procedure is not followed, your activity fund will be subject to review by an auditor and subject to
discontinuation.
MANAGEMENTRESPONSE
Corrective Action(s): Bank reconciliations are required to be completed on a monthly basis. Part of the
reconciliationprocessincludessignatureandreviewofthereconciliationbytheExecutiveDirectorofFinance.
TheFinancedepartmentwillprepareanddistributewrittenprocedures,instructionsandassignmentofdutiesto
individualswhohandlecash.
DueDateofCompletion:Thebankreconciliationprocesshasalreadybeenimplementedandisongoing.The
writtenprocedureswillbecompletedanddistributedinFY18.

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EXHIBIT7
DEMINGPUBLICSCHOOLS
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2017008FFailuretoReconcileActivityFundsandReportAccurateBalancestoSponsorsandTeachers
CONDITION
TheformerBusinessManagerandCFOdidnotensuretheGeneralActivitiesaccountwasproperlyreconciled.The
formerBusinessManagerstatedthattheformerDHSHeadSecretarysdepositswouldneverbalanceandshe
becametiredofreportingthistotheformerCFOandtheDHSPrincipalandthenbeingaccusedoftreatingthe
Secretarybadlyandunfairly.Forthisreason,shewouldreconcilewiththeActivitiesOfficemonthly,butfees
collectedintheDHSOfficewentunreconciled.
Duringourfieldwork,employeesexpressedfrustrationwiththelackofresponsivenessfromtheformerDHSHead
SecretaryandCentralOfficeontheirrequestsforinformationontheirbalances.AswehaveshowninExhibit4,
theamountstheformerDHSHeadSecretaryreportedwerenotaccurate(includedskimmedreceiptsthatwere
neverdeposited)andwerenotreconciledtoTriadic.
CRITERIA
EFFECT
CAUSE
RECOMMENDATION
completely,recordedaccurately,andapproved.Staffmustbemadeawarethattheyshouldnotleaveuntilthey
haveareceiptinhandformoniestheyturnovertoanotherperson.Teachersmustkeepindependentrecordsof
theirclassesandamountscollected.Copiesofchecksshouldbemadeandkeptonfileforthedepositsupporting
documentation.MonthlystatementsshouldbepreparedateachSchoollevelandreviewedbyCentralOfficeand
senttoteachersandsponsorsbyapersonindependentoftheprocess.
MANAGEMENTRESPONSE
CorrectiveAction(s):Thefinancedepartmentiscurrentlyworkingonreconcilingtheactivityfundsandwillhave
thereconciliation completebyJanuary2018.Oncethereconciliationiscomplete,areportwill besent to the
appropriateindividualsonamonthlybasisshowingactivityandavailablefunds.
Due Date of Completion: Activity funds will be reconciled by January 2018 and reports sent to appropriate
individualsbyFebruary2018.
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EXHIBIT7
DEMINGPUBLICSCHOOLS
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2017009FInadequateControlsoverActivityFundsCashReceiptsandCollections
CONDITION
There were inadequate controls over receipts to safeguard the Districts assets and collections for charitable
causes.Thisresultedinpotentialfraudasdescribedinmoredetailinthefindingsabove.Employeesfrequently
acceptedtheformerDHSSecretarysexcusesanddidnotgetreceiptsforfundstheyturnedovertoher.Thesafe
in DHSs office was in an unlocked closet and was not locked since no one knew the combination. When
questionedaboutthemissingdeposits,shestatedthemonieswereinthissafeintheDHSoffice,buttheywere
notfoundthere.Dualcontrolofreceiptsdidnotexistandthesamepersonreceiptingdepositsalsoenteredthe
depositsintoTriadicandbroughtthemtothebank.Therewasnofinalcheckthatwhatwasreceivedwasrecorded
anddepositedproperly.
ItwasreportedtousthattheformerDHSSecretaryalsomaintainedaseparatereceiptticketbook(nonDistrict
issued).ReceiptbookswerenotproperlyissuedandtrackedbyCentralOfficefortheinstanceswhenTriadicwas
not working. We saw evidence of frustration with the former DHS Head Secretarys claims that her Triadic
receiptingsystemwasnotworkingandseveralattemptsbyotheremployeesandthecompanytofixthisprinter
whenitwasworkingfineandtoprovideothermeanstoprintreceipts,suchasontheofficeprinter.TheDHS
Principaldidnotadequatelyaddresscomplaintsandperformanceissueswithherandremainedtrustfulofher,
discountingreportsmadebyotheremployees.
CRITERIA
DistrictPolicy4761UseofDistrictComputers.TheDemingPublicSchoolsseekstoprotectlegitimateusersof
technologybyestablishinglimitsonsuchuseandsanctionsforthosewhoabusetheprivilegeUnacceptableuse
activities constitute, but are not limited to, any activity through which any user: 4. Uses or knowingly allows
anothertouseanycomputer,computernetwork,computersystem,program,orsoftwaretodeviseorexecutea
schemetodefraudortoobtainmoney,property,services,orotherthingsofvaluebyfalsepretenses,promises,
orrepresentations.5.Destroys,alters,dismantles,disfigures,preventsrightfulaccessto,orotherwiseinterferes
withtheintegrityofcomputerbasedinformationresources,whetheronstandaloneornetworkedcomputers.7.
Usesthenetworkforpersonalorprivategain.8.Donotdestroy,modifyorabusethehardwareorsoftwarein
anyway.Usersshallreportanysuspectedabuse,damagetoequipmentortamperingwithfilestotheschool
district system operators. Staff who violate this policy shall be subject to discipline, up to and including
suspension,terminationordischarge,inaccordancewithBoardpolicy,negotiatedagreementsandapplicablelaw.
Violationsoflawwillbereportedtolawenforcementofficials.
EFFECT
CAUSE
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EXHIBIT7
DEMINGPUBLICSCHOOLS
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2017009FInadequateControlsoverActivityFundsCashReceiptsandCollections(Continued)
RECOMMENDATION
completely,recordedaccurately,andapproved.Staffmustbemadeawarethattheyshouldnotleaveuntilthey
haveareceiptinhandformoniestheyturnovertoanotherperson.Teachersmustkeepindependentrecordsof
theirclassesandamountscollected.Copiesofchecksshouldbemadeandkeptonfileforthedepositsupporting
documentation.MonthlystatementsshouldbepreparedateachSchoollevelandreviewedbyCentralOfficeand
senttoteachersandsponsorsbyapersonindependentoftheprocess.
MANAGEMENTRESPONSE
Corrective Action(s): An internal control policy will be implemented by the board. Financial training was
conductedinAugust2017andwillcontinuethroughouttheyear.Trainingwillalsobeconductedonanindividual
basis as deemed necessary. The finance department, in conjunction with the audit committee will conduct
periodicauditsoftheDistrictsactivityfunds.Additionalcontrolsandtrainingformanualreceiptswillbeputin
place.
Due Date of Completion: An internal control policy will be implemented by February 2018. Training for
appropriatestaffwillbeongoing.
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EXHIBIT7
DEMINGPUBLICSCHOOLS
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2017010FIrregularCashReceiptsforMoneyCollected,FormofReceipts,LackofControlsoverReceiptBooks
CONDITION
TheformerDHSHeadSecretarydidnotretainevidencethatreceiptsareissuedforallmoniescollected.Central
Officedidnotspecificallytracktheissuance,use,completion,andinventoryofprenumberedreceiptbooks,along
with the Triadic receipts, and reconcile those to the Activity Fund reconciliations turned in by the Schools.
Additionally,thereceiptswerenotkeptintactasrequired.Usingreceiptsasapettycashfundisnotallowed,but
wasreportedbyotheremployeesascommonpracticeintheDHSoffice.ItwasalsoreportedthattheformerDHS
HeadSecretaryinsistedoncashpaymentsincertaincases,refusedtoissuevalidrefundstostudents,andbecame
angrywhenteachersdidnotcollectlabfees.Itwasalsoreportedthatatleastoneteacherrefusedtoturnin
receiptstoherandwouldonlyturnthemintotheActivitiesOffice.Thisclasssactivityaccountsomehowbecame
inthenegative,approximately$32,000.
CRITERIA
DistrictPolicy520FiscalControl.TheDemingSchoolsBoardofEducationisresponsibleforthecontrolofall
fundsoftheschooldistrictincludingallfundscollectedatindividualschools,whetherbyschoolpersonnelorby
others,ifstudentsareusedtoassist,or,ifthenameoftheschooloroftheschooldistrictisusedinconnection
withtheprocess.TheSuperintendentordesigneeshallberesponsiblefordetailingandmaintainingallprocedures
necessarytoensureadequatefiscalcontrol.
1. All schools and departments within the Deming School District shall comply with the regulations
prescribed in the Manual of Accounting and Budgeting provided by the Public Education
Department.
2. Allschoolsanddepartmentswillusetheestablishedchartofaccounts.
DistrictPolicy500BusinessPolicyStatement.
EFFECT
The District is exposed to the risk of collections of money that may be misappropriated and not make it into
ActivityFundaccountsforbenefitofthestudents,staff,andparents.
CAUSE
The Districts controls were not strong enough over cash receipts and many people trusted the former DHS
Secretarywithoutverification.
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(Continued)
RECOMMENDATION
TheDistrictshouldmaintaintightcontrolsoverreceiptsformoneycollectedandtracktheprenumberedreceipt
books.TheseshouldalsobereconciledtothemonthlyreportsformerDHSHeadSecretaryssubmitandtothe
FundraiserstheSuperintendentapproves.BelowaresomeexampleinternalproceduresthatDistrictsuse:
1. Receiptbooksmustbeprenumberedandintriplicate.
Whitetopersonturninginmoney
1stCopyattachtobackupdocumentation
2ndCopystaysinreceiptbook

2. Receiptsmustcontainthefollowinginformation:
NameofSchool
Date
ReceiptNumber(prenumbered)
Receivedof
Amount
Briefdescriptionofcluboraccounttobecredited
Listanyrefundwithanexplanation.
3. Sponsors must turn in monies received within 24 hours of raising, or receiving to the former DHS Head
Secretarysofficewithacompletedcashslip.Cashslipshouldincludethefollowing:
Date
Listcurrencyandcoins
Checksmaybelistedasalumpsum.(FormerDHSHeadSecretarywillattachcopiesofcheckstothecash
slip.)
Descriptionofhowmoneywasraised
Signatureofboth,thesponsorandtheformerDHSHeadSecretary

FormerDHSHeadSecretarywillverifycash,checks,etc.whilesponsorispresent.
FormerDHSHeadSecretarywillsignoffoncashslipandissueareceiptafterverificationiscomplete.
Reminder:Bankinterestmustbereceipted.

4. Issueaseparatereceiptforeachdeposit.

5. Depositsmustbemadewithin24hoursafterissuanceofthereceipt.
6. Attachbankreceiptstothedepositslipforreference.
(Amountonbankreceiptanddepositslipmustmatch)

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(Continued)
7. Backupdocumentationshouldincludethefollowing:
BankReceipt
CopyofSchoolReceipt
CopyofCashSlip
CopyofChecks

8. Transfers
If you wish to transfer any amount of funds from one account to another, approval is needed from both
sponsorsinvolved.FinalapprovalisbythePrincipal.
MANAGEMENTRESPONSE
CorrectiveAction(s):AprocessforconsistentlyreceiptinganddepositingfundswillbeimplementedinFY18.The
financedepartmentwillmonitorthisprocess.Trainingwillbeconductedonthenewprocessatleastannuallyand
asneeded.
DueDateofCompletion:AnewprocesswillbeimplementedinFY18.

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EXHIBIT7
DEMINGPUBLICSCHOOLS
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2017011FInadequateInternalControlsoverActivityFundsCashDisbursements,Purchases,andAccounts
Payable
CONDITION
Duringforensictesting,wefoundthatDHSdidnotalwayshaverequisitionsandinvoicestosupportactivityfund
expendituresorliabilities(vendoraccounts)anditwasreportedtousthattheformerDHSHeadSecretarywould
codePurchaseOrderstoincorrectclasses.Itwasreportedtousthatsheforgedthesignatureonatleastone
PurchaseOrder.Duetothelackofdocumentation,wecouldnotdocumentthatpurchasesonvendoraccounts
wentthroughareviewandapprovalprocessandwecouldnottestthevalidityofcertainpaymentsoramounts
duetovendors.
Generally, wenoted that amountspurchasedoncredit were nottrackedwell. Forexample,employeeswere

allowedtogotoPeppersGroceryStoreandpickupitemsoncredit,thentheseitemswerenottrackedastotheir
intendedandproperuse.TherewerereportsoftheformerDHSHeadSecretarypurchasinglargeamountsof
paintwhennopaintingwasoccurringintheDistrict.TherewasalsotheinstancewhereshepurchasedaTVwith
DistrictfundsandreimbursedtheDistrictafterbeingquestionedaboutthis.
Althoughoutsidethescopeofourengagement,wealsonotedtheDistrictisalsousingcreditcards,debitcards,
prepaidWalmartcards,andanAmazonaccountwithoutstrictaccountability.
CRITERIA
DistrictPolicy519AllowableandUnallowableExpenditures.
DistrictPolicy526AdherencetoPurchasingProcedures.ItisthepolicyoftheDemingSchoolsBoardofEducation
that4allemployeescomply5withBoardpoliciesasaconditionoftheiremploymentmeetingallstandardsof
behavior 6 and performance. It is the policy of the Deming Board of Education that for the purchase and/or
acquisitionofmaterials,property,services,andsupplies,allemployeesmustcomplywithBoardpolicies,rules,
andregulations;PublicEducationDepartmentregulations;NewMexicoStatutesincludingallprovisionsofthe
NewMexicoProcurementCode;andanyapplicablefederallaws.Violationoftheserequirementswillsubjectthe
employeetoappropriatedisciplinaryactionuptoandincludingdischargeorterminationofemployment.
EFFECT
TheDistrictsreputationhassufferednegatively.Theremayhavebeenlatefeesorinterestpaid.Thebalances
owedwerenotcompletelyknownduetolackofcontrols.
CAUSE
Itappearsthatduetoacashskimmingfraudscheme,theformerDHSHeadSecretarydidnothaveenoughfunds
intheactivityfundbankaccounttopayallthevendorstimely.
RECOMMENDATION
ItisrecommendedthattheDistrictdevelopandimplementsoundpoliciesandproceduresrelatedtothereview
andapprovalofinvoices.Additionally,documentsmustbesafeguarded.
Checksmustbeprenumbered,thesequenceandanyvoidsareaccountedforregularly,andunissuedchecksare
controlledandkeptinasecurelocation.Bankstatementsmustbereviewedcarefullyinatimelyfashion.POs
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Payable(Continued)
shouldbeissuedafteranapprovedRequisitionandbeforethecommitmenttopurchase.Alldocumentsshould
beonfileandsupportthepurchase.BelowareexampleproceduresthatDistrictsuse:
Disbursements/Expenditures
1. The individual issuing checks must have a signed copy of a purchase order and invoice before issuing any
checks.
2. Checksmustbeprenumbered,induplicate,requiretwosignaturesandhavecorrespondingcheckstubswith
runningbalance.
3. Allchecknumbersmustbeaccountedfor,includingvoidedchecks.NotifyCentralOfficeimmediatelyifa
checkislostorstolen.
4. Prepayments/advances/reimbursements:foranyreasonmustbejustifiedbytheprincipalandnotedonthe
requisitionandonthepurchaseorder.Iftheprincipal,formerDHSHeadSecretaryoranyotherauthorized
signer on the account is requesting a reimbursement or purchase, it must be approved by the Business
ManageratCentralOffice.TheBusinessManagerwillapprovethesereimbursementsand/orpurchasesand
willcosignthecheck.
All receipts or invoices must be turned in to the former DHS Head Secretary and attached to the
voucher/purchaseorderwithin24hoursofpurchase.
5. Under nocircumstances should expenditureora purchase orderbe allowedif aschool/classisshort of
funds,inthered,orhaveazerobalance.
6. Nocheckswillbeallowedtobemadeouttocash.
7. Nopostdatedcheckswillbeallowed.

OutstandingChecks
Listanyoutstandingchecksattheendofthemonthforreconciliation.Voidafteroneyearofcheckdate.Check
maybereissuedorfundsmaybereturnedtoclub/class.
Requisitions/PurchaseOrders
1. Staffwillsendrequests(requisition)toprincipalforapproval.
2. RequisitionsmustbecompletewithallrequiredinformationbeforetheformerDHSHeadSecretarywillissue
apurchaseorder.
3. Arequisitionisnotapurchaseorderandcannotbeusedtopurchase.Whenthepurchaseorderisissued,the
principalwillauthorizeprocessforhanddelivery,fax,ormailtovendor.
4. Arequisitionandpurchaseordermustbesignedbytheprincipalbeforepurchase.
5. Anystaffpurchasingitemsbeforethepurchaseorderhasbeenapprovedandsignedbytheprincipalwillnot
bereimbursedforthatpurchase.
MANAGEMENTRESPONSE
CorrectiveAction(s):TheprocurementprocessforactivityfundswaschangedinJuly2017.Apurchaserequisition
withappropriateapprovalsisrequiredbeforeapurchaseorderwillbecreated.Thepurchaseordermustbein
placepriortothepurchasetakingplace.
Outstandingchecksaremonitoredonamonthlybasisandfolloweduponifnecessary.Allstaledatedchecksare
voidedafteroneyear.
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Payable(Continued)
TheDistrictwillbetransitioningfromusingcreditcardstotheprocurementcardwhichcanbecontrolledand
monitoredmoreclosely.
ResponsibleParty:AdministrativeStaff,Secretaries,ChiefProcurementOfficer,Controller,ExecutiveDirectorof
Finance
DueDateofCompletion:TheprocurementprocessforactivityfundswaschangedinJuly2017.Allstalestated
checkswerevoidedatJune30,2017.Thetransitionfromcreditcardstotheprocurementcardwilltakeplace
FY18.
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2017012FAccountBalancesNotRollingForward/DistrictsGeneralLedgerSoftware
CONDITION
During our review of the Districts prior year audit findings, we noted that material balances were not rolling
forwardproperlyinTriadic,theDistrictsgeneralledgersoftware.Thiswascorroboratedthroughourinterviews
andourtestingonactivityfundsbalances.Forexample,inFund23000,account9138529sJune30,2015ending
balanceinTriadicwasnegative$(17,501)butthebeginningbalanceatJuly1,2015was$0.Additionally,forthis
account,whenmanagementaddedtogetherfromtheaccountsbeginningbalanceplusallthenetactivityover
the years, the June 30, 2017 ending balance would have been negative $(185,040), but it was only negative
$(16,597).
Intheprioryear,theformerCFOworkedwithTriadictoresolvetheseissueswhenthenewauditorhaddiscovered
them.However,accordingtotheformerBusinessManager,itwasnotresolved.
ItappearstherewasgreatdifficultyinuploadingtheTriadicreceiptsfromtheSchoolsbyeachdatereceived,as
theG/Lonlyshoweddepositsalldatedasofmonthend.
CRITERIA
EFFECT
Withoutthesecontrols,theentityisatmoreriskforidentitytheft,lossofdata,lossoffunds,lackofsegregation
ofduties,fraud,waste,abuse,andnoncompliance.
CAUSE
TheformerCentralOfficeAdministrationdidnotproperlycloseouteachfiscalyearandreconcileTriadicaccount
balances.
RECOMMENDATION
WerecommendthattheDistrictformallymonitorpoliciesandproceduresoverthefinancialcloseandreporting
process.Itiscriticalthatbalancesrollforwardfromtheauditedfinancialstothenextyear.
MANAGEMENTRESPONSE
CorrectiveAction(s):TheDistrictwillbeimplementinganewsoftwareforFY19.
ResponsibleParty:ExecutiveDirectorofFinance,ExecutiveDirectorofHumanResources,DirectorofTechnology
andSuperintendent
DueDateofCompletion:SoftwarewillbeimplementedJuly1,2018.

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2017013FDistrictsFinanceandAuditCommitteesoftheBoardofEducationMonitoringandCorrective
Actions
CONDITION
WhiletheDistricthashadtherequiredfinanceandauditcommitteeswiththerequiredmembers,itdoesnothave
Charters outlining the committees purposes, responsibilities, functions, and planned actions. The audit
committee did meet with the auditors during the audit as required by state statute; however, there was no
indicationthateitherthefinanceorauditcommitteeorCentralOfficewasactivelyassessingrisksandfollowing
uponthethoroughimplementationoftheindependentauditorsrecommendedcorrectiveactions.Repeated
complaintsandrumorsyearafteryearareredflagsforadministrationandgovernance(whichincludestheBoard
ofEducationandthesetwoCommittees)toanalyzethecausesandimplementstrongcontrolstotakecorrective
action.Surpriseauditsshouldbeconductedaswell.
CRITERIA
DistrictPolicy520FiscalControl.
DistrictPolicy500BusinessPolicyStatement.
Additionally,in2010,the49thLegislatureoftheStateofNewMexicopassedHouseBill227,whichresultedinNM
Stat22812.3.ThisstatuterequireseachDistricttocreateaFinanceCommitteeandanAuditCommittee,the
purposes of which, we believe, are to increase accountability and transparency by providing independent
oversightofDistrictfinancialpracticesthatmayimpacttheannualexternalauditandDistrictbudget,revenues,
expenditures,andoperations.Therelevantlanguageofthebillisasfollows(emphasesadded):
Section1:(B)Eachlocalschoolboardshallappointatleasttwomembersoftheboardasafinancesubcommittee
to assist the board in carrying out its budget and finance duties. (C) The finance committee shall: (1) make
recommendationstothelocalschoolboardinthefollowingareas:(a)financialplanning,includingreviewsofthe
schooldistrictsrevenueandexpenditureprojections;(b)reviewoffinancialstatementsandperiodicmonitoring
ofrevenuesandexpenses;(c)annualbudgetpreparationandoversight;and(d)procurement;and(2)serveasan
externalmonitoringcommitteeonbudgetandotherfinancialmatters.
Section1:(C)eachlocalschoolboardshallappointanauditcommitteethatconsistsoftwoboardmembers,one
volunteermemberwhoisaparentofastudentattendingthatschooldistrictandonevolunteermemberwhohas
experienceinaccountingorfinancialmatters.Thesuperintendentandtheschooldistrictbusinessmanagershall
serveasexofficiomembersofthecommittee.Theauditcommitteeshall:(1)evaluatetherequestforproposal
forannualfinancialauditservices;(2)recommendtheselectionofthefinancialauditor[totheBoard];(3)attend
theentranceandexitconferencesforannualandspecialaudits;(4)meetwithexternalfinancialauditorsatleast
monthlyafterauditfieldworkbeginsuntiltheconclusionoftheaudit;(5)beaccessibletotheexternalfinancial
auditors as requested to facilitate communication with the board and superintendent; (6) track and report
progressonthestatusofthemostrecentauditfindingsandadvisethelocalschoolboardonpolicychanges
neededtoaddressauditfindings;(7)provideotheradviceandassistanceasrequestedbythelocalschoolboard;
and(8)besubjecttothesamerequirementsregardingtheconfidentialityofauditinformationasthoseimposed
uponthelocalschoolboardbytheAuditActandrulesofthestateauditor.

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Actions(Continued)
DistrictPolicy127LocalSchoolBoardAuditCommitteeDuties.Thispolicycoversthesameitemsasthestatutes.
Athletics. Board of Education or Governing Council Responsibilities: The school district or charter school
governingboardisresponsibleforadoptingpoliciesovertheestablishmentofallagencyfunds.Thesepolicies
shouldincludetheappropriateaccountingandreportingpractices.Activityfundsmustbesupportedbydetailed
records, maintained as (sic) the school building responsible for the organization or club account. Due to the
fiduciaryresponsibilityoftheBOEorGoverningCouncilthesefundsaresubjecttothesameinternalcontrolsas
allotherdistrictfunds.
InternalControlsoverMonitoring.TheDistrictshouldobtainanunderstandinganddescribehowmanagement
monitorstheoperationoftheentitysfivecomponentsofinternalcontroltomakesure(a)controlsareoperating
as intended and (b) changes to controls are made when necessary. Also describe what reports or other
information(suchasbudgetvariances,reconciliations,ormonthlyfinancialreports)administrationusesforthat
purpose and why administration considers the information reliable. Consider controls relevant to the audit.
Consider the following principles: The District selects, develops, and performs ongoing and/or separate
evaluationstodeterminewhetherthecomponentsofinternalcontrolarepresentandfunctioning.TheDistrict
evaluates and communicates internal control deficiencies in a timely manner to those parties responsible for
takingcorrectiveaction,includingsenioradministrationandthegoverningbody,asappropriate.
EFFECT
TheDistrictsfinancesandoperationsdonothavetheproperexternalmonitoringandoversight.Correctiveaction
onfindingsarenotoccurringascompletelyastheyshould.ThisleavestheDistrictsusceptibletofraud,waste,
abuse,anderrors.
CAUSE
ThestatutorypowersoftheBoardofEducationanditsFinanceandAuditCommitteesarenotbeingutilizedto
theirintendedandfullestextent.
RECOMMENDATION
TheBoardofEducation,throughitstwocommitteesandanynecessarypolicies,shouldmonitorthatcorrective
actionisbeingtakenandthatallauditfindingsareresolvedpromptly.Thecommitteesshoulddocumenttheir
purposes, responsibilities, functions, and procedures to assess risks and monitor the correction of existing
deficiencies in the accounting internal controls environment. The Superintendent should provide a monthly
reportofstudentactivityfundsactivitiestotheBoard.
WerecommendcreatinganAuditCommitteeCharterapprovedbytheBoardofEducation.Wehaveprovidedan
example to the Districts former CFO. We recommend that the Finance and Audit Committees remain active
throughouttheyeartoincreasetheireffectiveness.Examplesofremainingactiveare:attendingNMSBA/NMASBO
finance and ethics trainings, performing random audits of activity funds, fundraisers, athletic events and
concessions,requestingreportsfromadministrationonspecificareaswithfindingsorrisks,evaluatinginternal
controls,etc.

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Actions(Continued)
BoardandcommitteemembersareprincipallyadeptatassessingrisksthatmayexistintheDistrictandmonitoring
correctionofproblemsbecausetheyaretheclosesttothepeopleparents,children,staff,businessowners,and
communitymembersandareaccountabletotheirconstituents.
MANAGEMENTRESPONSE
Corrective Action(s): The Board will approve an Audit Committee charter that will document purposes,
responsibilities,functionsandprocedurestoassessrisksandmonitorcorrectiveactions.TheAuditCommitteewill
remainactivethroughouttheyearinordertoincreasetheireffectiveness.
ResponsibleParty:BoardofEducationandAuditCommittee
DueDateofCompletion:TheAuditCommitteecharterwillbeapprovedinFY18andthecommitteewillwork
withtheFinancedepartmentandSuperintendenttoremainactivethroughouttheyear.

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2017014FDistrictsCentralOfficeSuperintendentandFinanceDepartmentMonitoring,RiskAssessment
andCorrectiveActions
CONDITION
Duringtheforensicengagement,wenotedthattheDistrictdidnotperformtherequiredannualactivityfund
audits.Theauditsmusttestforcertainkeycontrolssuchassegregationofduties,inventoryandcontrolofcash
receiptlogs,documentretention,andfundraising/feereconciliations.TherewasnoindicationthatCentralOffice
wasactivelyassessingrisks,tighteningupinternalcontrolsoveractivityfundsinresponsetotheirinternalfindings,
andmonitoringthethoroughcorrectionofthefindingswithaccountability.Multiplecomplaintsandrumorsina
particular area are red flags for administration and governance to analyze the causes and implement strong
controlstopreventtheerrorsfromoccurringinthefuture.
CRITERIA
Athletics.
EFFECT
TheDistrictsfinancesandoperationsdonothavethepropermonitoring,riskassessment,andoversight.Internal
auditproceduresandcorrectiveactiononinternalfindingsarenotfunctioningastheyshouldbe.Thisleavesthe
Districtsusceptibletofraud,waste,abuse,anderrors.
CAUSE
TheFinanceDepartmentdidprovidetrainingtoemployeestoaddresstheexternalandinternalauditfindings;
however,theprocedures,corrections,andaccountabilitywerenotstrongenough.
RECOMMENDATION
TheDistrictsadministrationshouldmonitorthatcorrectiveactionisbeingtakenandthatallexternalandinternal
audit findings are resolved promptly. Setting an ethical and strong tone at the top, followed through with
accountabilityforstaffiscritical,asthissetsthetoneforstandardconduct.Werecommendanalyzingtheinternal
controlsovertheactivityfundsinternalauditprocesstoensuretheinternalauditsaretestingeverythingthey
shouldandfrequentlyenoughtoaddressvariousrisksandsetupstrongeraccountabilityforstafftoremainin
compliancewithDistrictandPEDpolicies,procedures,andregulations.Werecommendstrongproceduresand
monitoringtoensurecompliancewiththeGovernmentalConductAct.
MANAGEMENTRESPONSE
CorrectiveAction(s):TheFinancedepartment,theSuperintendentsofficeandtheAuditCommitteewillwork
closelytoensurethatallauditfindingsareresolvedpromptly.Apolicyonhandlingofactivitycashfundswillbe
approved by the Board. The Finance department and Superintendents office will continue to require
accountabilityfromstafftoensurecompliancewithallpoliciesandtheGovernmentalConductAct.
ResponsibleParty:ExecutiveDirectorofFinance,SuperintendentandtheAuditCommittee
Due Date of Completion: A policy on handling of activity cash funds will be implemented in FY18. The Audit
Committeewillworktoaddressallfindingsinboththeexternalauditandtheforensicauditinatimelymanner.
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2017015F Districts School Principals Monitoring and Corrective Actions, Principal Turnover, and Staff
Evaluations
CONDITION
BecauseerrorswiththeactivityfundsatDHShavebeenoccurringformanyyears,thePrincipalmaynothave
been monitoring activity fund records and holding their staff accountable for corrective action on findings,
complaints,andrumorsandimplementingstronginternalcontrols.
We reviewed the evaluations of the former DHS Head Secretary. These evaluations did not reflect her
performanceorthenumerouscomplaintsbroughttotheformerDHSPrincipalsandAdministrationsattention.
CRITERIA
Athletics.
DistrictPolicy215EvaluationofEmployees.
EFFECT
TheDistrictsfinancesandoperationsdonothavethepropermonitoringandoversight.Internalauditprocedures
andcorrectiveactiononinternalfindingsarenotineffectastheyshouldbe.ThisleavestheDistrictsusceptible
tofraud,waste,abuse,anderrors.
CAUSE
TheFinanceDepartmentdidprovidetrainingtoemployeestoaddresstheexternalandinternalauditfindings;
however,theprocedures,corrections,andaccountabilitywerenotstrongenough.
RECOMMENDATION
TheDistrictsadministrationshouldmonitorthatcorrectiveactionisbeingtakenandthatallexternalandinternal
audit findings are resolved promptly. Setting an ethical and strong tone at the top, followed through with
accountabilityforstaffiscritical,asthissetsthetoneforstandardconduct.Werecommendanalyzingtheinternal
controlsovertheactivityfundsinternalauditprocesstoensuretheinternalauditsaretestingeverythingthey
shouldandfrequentlyenoughtoaddressvariousrisksandsetupstrongeraccountabilityforstafftoremainin
compliancewithDistrictandPEDpolicies,procedures,andregulations.
MANAGEMENTRESPONSE
CorrectiveAction(s):TheFinancedepartment,theSuperintendentsofficeandtheAuditCommitteewillwork
closelytoensurethatallauditfindingsareresolvedpromptly.Apolicyonhandlingofactivitycashfundswillbe
approvedbytheBoard.EvaluationswillbedoneannuallybasedontheProfessionalDevelopmentPlan(PDP).The
Finance department and Superintendents office will continue to require accountability from staff to ensure
compliancewithallpoliciesandgovernmentalregulations.
ResponsibleParty:ExecutiveDirectorofFinance,SuperintendentandtheAuditCommittee
Due Date of Completion: A policy on handling of activity cash funds will be implemented in FY18. The Audit
Committeewillworktoaddressallfindingsinboththeexternalauditandtheforensicauditinatimelymanner.

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2017016FInsufficientAccountingRecords,DocumentRetention,InspectionofPublicRecordsAct
CONDITION
TheformerDHSHeadSecretarydidnotmaintaintherequiredappropriateaccountingrecordsforactivityfunds
transactionsandbalances.Wewereunabletocomprehensivelycompleteourforensicproceduresduetomissing
recordsincludingbutnotlimitedto:cashreceipts,detailedbalancesoftheactivityfundbalancebyarea/class,
invoices,approvals,POs,activityfundreconciliations,feeandforgivenessoffeesrecords,DHSdepositslips,and
bankdepositreceipts.
TheDistrictdeletedtheformerDHSHeadSecretarysemailuseraccountwithMicrosoftuponhertermination
andheremailswerenotretrievable.Herharddrivehadbeencleanedandtherewereclaimsthathersistermay
haveremovedelectronicrecordsforher.TheDistrictdidnotbackupherharddriveornetworkdrive.TheDistrict
doesnothavepoliciesorprocedurestoensurecompliancewithIPRA.
DuringourfirstconferencecallwiththeformerAdministrativeteam,weinstructedboththeformerAssistant
SuperintendentandtheformerCFOtoproperlysecureandpreserveanyandalldocumentsrelatedtothiscase
(includingelectronicbackups).Unfortunately,certainreceiptbooksandotherdocumentswereremovedfrom
theDHSOfficeandreportedlyshreddedthedaybeforeourfieldwork.
CRITERIA
Districtwide,allrecordsshouldbecategorizedandplacedinfiles,folders,orbindersforsafekeepingandeasy
accessbyanauditor.Allrecordsshouldbefiledinorderbydate.ApprovedbankStatementsandreconciliations
shouldbekepttogetherinonebinder.Alongwiththisbinderthereshouldbeafilekeptwithallthereceiptsfor
depositsandwithdrawalfromthebankaswellasafilewithanyandallcheckregistersused.Allreceiptsfor
purchasesshouldbefiledbymonththroughout thefiscalyear. Theoriginal approvedbudgetsaswellasany
approvedBudgetAdjustmentRequestsshouldbeallinonefileorbinder.Thesamegoesforanymonthlyor
quarterly financial statements produced throughout the fiscal year. Electronic records of all this should be
maintainedaswellinarchivesforpermanentaccess.Theyaretheofficialrecordwhichtheauditormustgobyto
ensurethatanentityisincompliancewithitsownoperatingstandards.
Oncerecordshavebeenproperlyfileditisimportantthattheyarestoredinasafeplacesothattheymaybe
utilizedinthefuturebytheBoardofEducation,Administration,Principals,newemployees,Auditors,orevenin
to comply with an Inspection of Public Records Act request from a member of the public. The New Mexico
Administrative Code (NMAC) sets forth the requirements for how long certain types of records must be
maintained by a government entity before they can dispose of them. The NMAC outlines these retention
requirementsinTitle1,Chapter15invariousparts.TheyareknownasGeneralRecordsRetentionandDisposition
Schedules(GRRDS).
NMSA 1978 Section 1425 Inspection of Public Records Act (IPRA). An essential function of a representative
governmentistoensureaninformedelectorate.Apublicrecordscustodianisdesignatedandallpersonsare
entitledtothegreatestpossibleinformationaboutgovernmentactivitiesanddecisions.Allrecordsshouldbe
safeguardedandavailabletothepublic.
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2017016FInsufficientAccountingRecords,DocumentRetention,InspectionofPublicRecordsAct(Continued)
InternalControlsoverInformationandCommunication.
DistrictPolicy4761UseofDistrictComputers.
District Policy 6801 Inspection of Public Records. The Superintendent of the Deming School District shall
designateatleastonecustodianofpublicrecordswhoshall:1.Receiveandrespondtorequeststoinspectpublic
records; 2. Provide proper and reasonable opportunities to inspect public records, and 3. Provide reasonable
facilitiestomakeorfurnishcopiesofthepublicrecordsduringusualbusinesshours.
EFFECT
We could not gather sufficient documents to support the balances and transactions of DHS activity funds.
Completeinformationisnotavailabletoreview.Trustingovernmentisdecreased.
CAUSE
ThereasonstheformerDHSSecretarydidnotmaintainthesupportingdocumentationfortransactionsandthe
fullaccountingrecordsisunknown;however,itappearsthatshedidnotwantthedetailsofthemissingfundsto
be known. Additionally, it is unknown why certain documents were destroyed subsequent to our request to
preserveanyandallpaperorelectronicdocumentsandanyrelatedevidencetothissituation.
RECOMMENDATION
The District should hold employees accountable for their duties and for retaining the documents required to
performtheirdutiesinallgovernmentactivitiesanddecisions.
MANAGEMENTRESPONSE
Corrective Action(s): The Finance department will provide training on document retention to employees.
RetentionprocedureswillbeupdatedandreviewedwiththeTechnologyDepartmentasneeded.Procedureshave
already been implemented on maintaining supporting documentation. Additionally, the software that will be
implementedFY19willassistwithmaintainingsupportingdocumentation.
TheFinancedepartmentwillinspectdocumentationduringperiodicaudits.
ResponsibleParty:ExecutiveDirectorofFinanceandDirectorofTechnology
DueDateofCompletion:Financewillprovidetrainingondocumentretentiontoemployeesattheannualfinance
training.TechnologydepartmentprocedureswillbereviewedandupdatedifnecessaryinFY18.Newsoftware
willbeimplementedJuly1,2018.

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2017017FLackofEstablishedPracticesfortheIdentification,MitigationandMonitoringofRisks
CONDITION
DuringourreviewofinternalcontrolssurroundingtheDistrictsriskassessmentprocess,wenotedthatadequate
mechanismsarenotinplacetoidentifyrisksapplicabletotheDistrictandfinancialreportingobjectives,including
fraudriskandthenmitigateandmonitorthem.
CRITERIA
GoodinternalcontrolpracticesrequirethattheBoardandAdministrationhaveaprocessinplacetoidentifyrisks
potentiallyimpactingtheachievementoffinancialreportingobjectives.
Pursuant to the AICPA Audit and Accounting Guide for State and Local Governments, AAGSLV 13.08,
[m]anagementisresponsibleforthedesignandimplementationofprogramsandcontrolstopreventanddetect
fraud; management's knowledge of any fraud or suspected fraud affecting the entity involving management,
employeeswhohavesignificantrolesininternalcontrol,andotherswherethefraudcouldhaveamaterialeffect
onthefinancialstatements;andmanagement'sknowledgeofanyallegationsoffraudorsuspectedfraudaffecting
theentity.
EFFECT
WithoutariskassessmentapproachtoidentifypotentialrisksapplicabletotheDistrict,theDistrictisvulnerable
toerrorsand/orfraud.Withoutaproactiveriskassessment,errorsorfraudcouldoccurandgoundetected.
CAUSE
TheDistrictsapproachtoriskhashistoricallybeentofocusoncompliancewithstaterequirementsinsteadof
ensuringtheirownaccountingpolicies,proceduresandpracticesadequatelyaddressactivityfundsriskandother
financialreportingrisks.
RECOMMENDATION
ItisrecommendedthattheBoardofEducationestablishapracticefortheidentificationofrisksaffectingthe
District. Mechanisms that should be in place to identify risks applicable to the District and financial reporting
objectives include a) changes in operating, economic, and regulatory environments; b) participation in new
programsandactivities.TheDistrictshouldconsiderroutineeventsoractivitiesthatmayaffecttheDistricts
ability to meet its objectives as well as nonroutine events. We recommend developing forward looking
mechanisms to provide early warning of potential risks relevant to all transaction cycles and preparation of
financialstatements.Anyrisksrelatedtotheabilitytoinitiateandprocessunauthorizedtransactions,skimcash,
submitlatereports,notpayvendors,maintainasecondsetofbooks,etc.shouldbeappropriatelyidentified.
Fraudassessmentsshouldbepartoftheriskidentificationprocess.Theassessmentoffraudriskshouldconsider
incentives and pressures, attitudes, and rationalizations as well as the opportunity to commit fraud. The
assessmentoffraudriskshouldconsiderriskfactorsrelevanttoitsactivitiesandtothegeographicandpolitical
regioninwhichtheDistrictoperates.Plansshouldbeimplementedtomitigateidentifiedrisksandthenmonitor
them.
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2017017FLackofEstablishedPracticesfortheIdentification,MitigationandMonitoringofRisks(Continued)
MANAGEMENTRESPONSE
CorrectiveAction(s):Fundswillbeallocatedfortrainingregardingidentificationoffraudforalladministrative
staff.
ResponsibleParty:ExecutiveDirectorofFinance,Superintendent
DueDateofCompletion:Trainingfornewprocedureshasalreadyoccurred.Additionaltrainingwillbedoneas
identified.
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2017018FLackofControlsoverCompliancewiththeAntiDonationClauseoftheNMStateConstitution
CONDITION
TheDistricthasnotdesignedandimplementedcontrolstoensuretheAntiDonationClauseisnotviolated.This
includestheuseofcokemoneyandotheractivityfundsusedtopurchasegiftcards,food,etc.Also,itremains
unknownhowthenegativebalancesincertainactivityfundswillbereimbursed.
CRITERIA
EFFECT
TheDistrictcouldunlawfullybenefitindividualsororganizations.
CAUSE
Thisislikelyalackofknowledgeandlackofaccountabilityoverfinances.
RECOMMENDATION
staffshoulddesignandimplementcontrols,communicatethemtoallemployees,andthenmonitorcompliance.
MANAGEMENTRESPONSE
CorrectiveAction(s):TheFinancedepartmentwillprovidetrainingontheAntiDonationClausetoemployees.
DueDateofCompletion:FinancewillprovidetrainingontheAntiDonationClausetoemployeesattheannual
financetraining.
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2017019FOtherRisksIdentifiedduringtheForensicProcedures
CONDITION
Duringourprocedures,wenotedthefollowingadditionalrisksthatwereoutsidethescopeofourengagement;
however,werecommendtheDistrictfollowupon:
TypesofFundsTheDistrictshouldcloselyreviewPSAB18todeterminetheSchoolsrevenuestreams
andvariousactivitiesinordertoproperlyclassifythemintovariousaccountingfunds.Activitiesmaybe
trackedinDistrictAgencyfunds,DistrictGeneralorSpecialRevenuefunds,orpossiblytrackedinthenon
profitentitythatservestheDistrict,suchasaFoundationoraPTO.ItdoesnotappeartheDistricthas
made these assessments. As well, outside entities supporting the District must also be evaluated to
determineiftheyarecomponentunitsoftheDistrict(seeGASB61).
TimesheetFraudManyemployeesreportedtousthattheformerDHSHeadSecretarywasfrequently
absentfromworkforavarietyofpersonalreasons.Therewerecomplaintsthatshemaynothavebeen
truthful about the reasons for her absences that interfered with her duties. There was also some
documentationthatshewasnotmanagingsubstitutestimeaccurately.
Unreported Leave There were reports that the former DHS Head Secretarys took leave but never
submittedthistoCentralOffice.Therefore,althoughtheymayhavebeenapprovedbythePrincipal,the
leavetakenmaynothavebeensubtractedfrombalancesinthetimekeepingsystem.
Supplies Inventory We noted that there were no controls over the supplies inventory a lack of
segregation of duties and no records to indicate what was received, what was issued, and what the
balanceswere.
SecurityofRecordsRecordsweremissingfromtheformerDHSHeadSecretarysofficethatshouldhave
beenmaintained.
CrossTrainingWenotedtherewerenodedicatedfillinstoensurethatwhentheformerDHSHead
Secretary was on leave or assigned to other projects that the former DHS Head Secretarys tasks and
responsibilitieswerenotdelayedormissed.Fraudorerrorsaresometimesdiscoveredearlierwhenthe
employeeisonleaveandthefillinpersonisperformingtheduties.
Fraud,Waste,andAbuseHotlineItiscriticalthatahotlinenumberispostedthroughouttheDistrictand
perhapsonotherpaperworkandintrainings.TheNewMexicoOfficeoftheStateAuditorhasoneon
theirwebsitethatisfreeandveryeffective.Employeesshouldbeencouragedtoreportanyredflagsor
concerns without fear of retaliation. In this situation, several employees felt uncomfortable with the
former DHS Head Secretary and thought something was wrong for a long period of time before her
termination.
CRITERIA
NMSA1978Section131158(A)Nowarrant,checkorothernegotiableinstrumentshallbeissuedinpaymentfor
anypurchaseofservices,constructionoritemsoftangiblepersonalpropertyunlessthecentralpurchasingoffice
or the using agency certifies that the services, construction or items of tangible personal property have been
receivedandmeetspecifications.
NewMexicoPEDPSABSupplement18StudentActivityandAthletics.
NMStateStatutes,NMPEDCashControlsPSABSupplement,DistrictActivityFundGuidelines,andDistrictPolicy
Manual
60
EXHIBIT7
DEMINGPUBLICSCHOOLS
OCTOBER16,2017

2017019FOtherRisksIdentifiedduringtheForensicProcedures(Continued)
EFFECT
WithoutariskassessmentapproachtoidentifypotentialrisksapplicabletotheDistrict,theDistrictisvulnerable
toerrorsand/orfraud.Withoutaproactiveriskassessment,errorsorfraudcouldoccurandgoundetected.
CAUSE
TheDistrictsapproachtoriskhashistoricallybeentofocusoncompliancewithstaterequirementsinsteadofthe
Districtsaccountingpoliciesandprocedures.
RECOMMENDATION
ItisrecommendedthattheBoardofEducationestablishapracticefortheidentificationofrisksaffectingthe
District. Mechanisms that should be in place to identify risks applicable to the District and financial reporting
objectives include a) changes in operating, economic, and regulatory environments; b) participation in new
programsandactivities.TheDistrictshouldconsiderroutineeventsoractivitiesthatmayaffecttheDistricts
ability to meet its objectives as well as nonroutine events. We recommend developing forward looking
mechanisms to provide early warning of potential risks relevant to all transaction cycles and preparation of
financialstatements.Anyrisksrelatedtotheabilitytoinitiateandprocessunauthorizedtransactions,skimcash,
submitlatereports,notpayvendors,maintainasecondsetofbooks,etc.shouldbeappropriatelyidentified.
Fraudassessmentsshouldbepartoftheriskidentificationprocess.Theassessmentoffraudriskshouldconsider
incentives and pressures, attitudes, and rationalizations as well as the opportunity to commit fraud. The
assessmentoffraudriskshouldconsiderriskfactorsrelevanttoitsactivitiesandtothegeographicandpolitical
regioninwhichtheDistrictoperates.Plansshouldbeimplementedtomitigateidentifiedrisksandthenmonitor
them.
We also recommend monitoring office access and copier use along with security cameras, including backup
recordings,inareaswhichcashiscollectedandcounted.
Employeesshouldbetrainedonwhattodoandwhotocallshouldtheysuspectinappropriateactivity.
All equipment and supplies should have a designated, locked area with controlled access instead of being
maintained in individuals offices throughout the building. Inventory should be tracked (beginning balances,
purchases,issuances,andendingbalances)andcountedmonthlyandapproved.
MANAGEMENTRESPONSE
CorrectiveAction(s):Fundswillbeallocatedfortrainingregardingidentificationoffraudforalladministrative
staff.
The District will do an analysis on office and copier access and look at the option of adding pin numbers to
employeecopies.TheTechnologydepartmentwillanalyzeplacementofsecuritycamerasandbackuprecordings
todetermineifchangestocurrentproceduresarenecessary.
ResponsibleParty:ExecutiveDirectorofFinanceandDirectorofTechnology
DueDateofCompletion:Trainingwillbedoneasidentified.Technologydepartmentprocedureswillbereviewed
andupdatedifnecessaryinFY18.
61

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LearningTodayforLivingTomorrow

Theengagementwasdesigned toassistDPSindeterminingthe potential:fraudriskand dollarvalueoffunds

CopyCenter Former Student ITTech Administrative HSHead NewHS ER Activity Shop

FormerHSSecretary ShopTeacher CulinaryArtsTeacher BiologyInstructor CareerTechTeacher CAD/Eng.Design

Total(20122016): $ 254,634 $ 110,291 $ 144,342 $ 123,459 $ 131,175

CopyCenterRecords FormerDHSSecretary's GeneralLedgerBalancein DifferenceBetween

BalanceatJune30,2017 GeneralLedgerBalancein DifferenceBetween

6/30/2012 6/30/2013 6/30/2014 6/30/2015 6/30/2016

AmountperGeneralLedger 625,307 627,958 560,061 524,581 545,133

6/30/2012 6/30/2013 6/30/2014 6/30/2015 6/30/2016

GateReceipts $495,069 $ 507,417 $ 432,605 $ 375,735 $318,330

6/30/2012* 6/30/2013 6/30/2014 6/30/2015 6/30/2016

Activityfundbeginning $ 135,163 $ 128,369 $ 73,448 $4,052

6/30/2012* 6/30/2013 6/30/2014 6/30/2015 6/30/2016

Noninstructionalbeginning $ 485,974 $ 484,545 $ 483,281 $518,286

ReceivedPer DepositedPer AmountNot ReceivedPer DepositedPer AmountNot

$7,447 $2,637 $4,810 $ 2,010 $2,290 $ (280)

Generally, wenoted that amountspurchasedoncredit were nottrackedwell. Forexample,employeeswere

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