A STUDY OF KANSAS SCHOOL AUDITING PRACTICES 1965-64 DONALD ERVXM U.S., Kansas State University, 1959 A MASTER'S REPORT subnltted In partial fulfillment of the requirements for the degree MASTER OF SCIENCE College of Education KANSAS STATE UNIVERSITY Manhattan, Kansas 1965 by: Major Professor cop. 2 The writer wishes to express his appreciation to Dr. 0. Kenneth 0' Fall on, major advisor in this study, for his helpful advice and constructive criticise}. TABLE OF CONTENTS ill INTRODUCTION 1 STATEMENT OF PROBLEM 2 REVIEW OF LITERATURE 2 DEFINITION OF TERMS • 5 METHOD AND FIO BB WUS 5 THE STDDT * Master of Districts Reporting Audits 7 Responsibility for Performing the Audit t Audit Required as Pert of Written Board Policy 10 Audit Requested by Administrators on Application for Position.. 11 Auditor's Reports 12 Budgetary Practices 13 Beneficial Results of the Post audit 14 SUMMARY 14 BIBLIOGRAPHY 17 APPENDIX Ml ABSTRACT 24 iv LIST OF TABLES HMJ PACE I. Number of Schools Reporting mm 6 II. Districts That Audited 1963-64 7 III. Districts Reporting Concurrent Activity Fund Audits 8 TV. Responsibility for Performing the Audit... 9 V. Policy on Frequency of Audit 10 VI. Audit Requested by Administrators 11 VII. Publicity Given Audit Report 13 VIII. Changes in Budgetary Practices 14 INTRODUCTION Public expenditures of fund* have mounted to en ell time High during the pest deeede. Governmental activities dowsed e greater pro- portion of the dollar than ever before. Although peblic education costs have also mounted to an all tine high, the increase has not been so great when the value of the dollar and increased enrollment end services are considered. Nevertheless , the cost of public education Is high enough to attract the attention of the taxpayers. Since support of public education is primarily through local end state taxes, the local school administrator must do everything possible to show the taxpayer that the funds intended for school use ere receiving ell the safeguards end protection possible. One of the ways to insure the safety and protection of public funds is by using a feed audit pro- cedure. Auditing is the verification of the records kept In the accounting system of the school. Although the value of the eudlt has long been recognised, there does not seem to be any uniformity of practice among school districts within most states or among states.* Mandatory eudlt legislation, in some form Is used in forty-six states. Ae of 1963, Nebraska and Wyoming made no mention of the general l Paul R. Mart, Walter, C. Reusser, and John W. Pol ley, Public School Pinanca. p. 484. ZHendrick C. de Bruin, "A Closer Look at School District Audits, American School and Qalveralty., 36:47, October , 19*3, school district audit in applicable statutory provisions. Kansas has statutory provisions that nay be classified as permissive rather than mandatory in districts other than those in flrat and second class cities. In a recent year, $154,851,771 wave expended by Kansas public schools. 2 It was decided that s study to determine the extent the audit was being used in Kansas schools to protect this sen would be of value. STATEMENT OF THE PROBLEM The purposes of this study war*: (1) to discover the extent audits were being used in the schools of Kansas at the end of the 1965-64 school year, (2) to determine the frequency of the audit aa determined by written school policy, (3) to discover who makes the audits, and (4) to determine the utilization of the audit report by the school district. REVIEW OF LITERATURE School districts spent mora money in 1964-65 to educate a single child than aver before. The median school district In the United States raised its expenditures by more than 21 dollars during the last year. 3 lJ. E. K s odham (comp.), Kansas Schoo l Lams? 1957, Section 263 (C.S. 75-1122) p. 101 and Section 258* (G.S. 75-1117) p. 99, 1958. 2 State Department of Public Instruction, State of Kansas Statis- tical Annual Rej^rts for 1.959-60, County. Superintendents Reports, p. 4., I960. **The National Cost of Education Index 1964-65, Schoo l Mensssms nt . 9:106, January, 1965. In 1955 the Whit* lull Conference on Education estimated that dollars spent en education would double in the following deeade.* Moat people concerned with finance in the public schools agree that a good audit system la essential in providing protection for public funds, for giving the general public a statement of the financial con- ditions of the districts, and to protect the people who handle the funds of the districts. The postaudit is a verification of accounts, usually occurring at the end of the fiscal period. It may be carried on by state agencies or by Independent auditing agencies. The postaudit can be made annually, biennially, or at other periodic times as may be required by lav, or in the absence of legal requirement, by policy of the board of education. In some states the board of education may select auditing agencies to make the examination of their accounts. Many small school districts still follow the practice of selecting a committee of citizens at the annual meeting to audit the accounts. Such examinations do not meet any of the requirements of a technical audit. 2 Knesevich and Fowlkes state- For every fund classification in the school district to be ex— Inert in the postaudit there most be a study of its r se s a me s or receipts, expenditures, assets, and liabilities. A very general Hat of activities performed in a postaudit would Include: 1. Verification of opening balances. 1 Commit tee for the White Bouse Conference, A Report to the Presl,dent, Government Printing Office, pp. 6-7. April, 1956. 2paul R. Mort, Welter C. Reuaser, and John W. Policy, Public Scho ol Finance, p. 467. 2. Verification, analysis, and exandnatlon of sources of income and their proper posting. 3. Verification of disbursements. 4. Reconciliation of budget items with receipts and disbursements. 3. Examination of legal authorisation for all expenditures. 6. Examination and analysis of budgeting procedures employed. 7. Verification of all accounts recorded. 8. Reconciliation of all invoices paid with expenditures accounted for. 9. Examination of board of education minutes, insurance policies, contracts, and deeds (titles) to real estate. 10. Verification of assets and liabilities, bank balances, and so m* 11. Analysis and examination of bonded Indebtedness. 12. Examination of capital assets, inventories, surplus accounts , vouchers payable, and so on. 13. Reporting of errors of method and method of recording uncovered in the course of the audi ting. 14. A report on the accounting system employed, with recommen- dations far desirable and necessary changes If any. School administrators must be extremely careful that the auditor does mat enter into the realm of policy making for the school. It la not the auditor's business to look Into curriculum matters, educational policy, and attendance records of the school. The audi tor may be a spe- cialist in his own field but the administrator Is the specialist in the educational field. A report of the audit Is s must. Norman recommends that, "the independent auditor's report be filed with school officials within 30 days after completion of work." 2 It Is the purpose of the audit report to convey to the public information that will enable than to judge the 1 Stephen J. Knesevich and John Guy Powlkes, Business Msnsimwint of Local School Systems, pp. 147 148. 2 Loyal V. Norman, "Scope, Conduct, and Report of the School Audit;" fertcan School Board Journal. 127:45, October, 1953. work of the school officials for the previous year and to know what to expect in the following year. It is the administrator's duty to see that the report is Bade public by every possible means at his disposal. DEFINITION Of TEBMS Aa a guide to the reader and for further clarification the fol- lowing definition of ''postaudlt" was used in this report. The term "postaudlt" was used to denote an audit that is performed after the fiscal transactions have been completed during an accounting period or fiscal year. The "postaudlt" should be performed by an individual or firm from without the system. METHOD OF PlOCEbUKE The initial step In making this report was to make a study of the literature available on school audits. After the review of literature, it was decided that a short answer questionnaire would be administered to superintendents of selected school districts in Kansas. The questions were related to the 1963-64 school year. Administrators of five types of school districts were questioned. The districts were second class city districts, rural high school dis- tricts, eommon school districts (1-8) , common school districts(l-12) , end county ceemmmity high school districts. Questionnaires were sent to 195 administrators in the five types of districts named. These administrators were selected em a stratified random sampling heels and represented approximately 22 per cent of the total number of districts of the five types studied. Questionnaires were sent to the administrators of 24 per cent of the seemed class city districts, 19 per cent of the rural high school districts, 19 per tent of the common school districts (1-8) , 23 per cent of the cocoon school districts (1-12), and to ell the administrators of county caea—itty high school districts. THE STUDT The results reported In this study ware based on data collected free questionnaires returned by administrators of school districts which made up the study sample . Table I shows that the 77 per cent return from the total sample came from 151 school districts. The table alee shows the per cent of return by type of district included in the cample* TABLE X VOMER OF SCHOOLS REPORTING Type of IhjssVM ■setMl Per cent* districts sent returned returned Second dees city 20 19 95 Rural high school 53 34 62 Common school (1-8) 70 57 81 Common school (1-12) 32 24 75 County community high 20 17 85 Totals 195 151 77 •Per cents were rounded to the nearest whole number Nwnbgr of districts reporting, audits The results of the study Indicated that 128 of the 149 adminis- trators reporting had had a postaudlt performed in their district at the end of the 1963-64 school year. Table II shows that ninety- five per cent of the second class city district administrators reported use of the audit. This high vaa followed by county community high school districts with 94 per cent, to—an school districts (1-12) with 88 per east, and by common school districts (1-8) with 87 per cent. The lowest per cent of audit use was reported by administrators la the rural high school districts. Seventy-four per cent audit use was reported* TABLE II DISTRICTS THAT AUDITED 1963-64 Type of district audited Per cent* audited Second claaa city 19 18 95 Rural high school 34 25 74 Common school (1-8) 55 48 87 Common school (1-12) 24 21 M County community high 17 16 94 Totala 149 131 Average 86 *Per cents were rounded to the nearest whole number Table III ahows that an activity fund audit was made concurrently with the general postaudlt In 95 per cent of the second elass city districts and by 94 per cent of the county community high school districts. Administrators of common school districts (1-12) reported 80 per cent of their districts had concurrent postaudlta of activity funds aad rural high school administrators reported 53 per cent. Common school district (1-8) administrators reported that only IS per cent of their districts had had a concurrent post audit of activity funds. TABLE III DISTRICTS REPORTING CONCURRENT ACTIVITY FUND AUDITS Type of district Number of yea no Per cent* yes Second class city W 18 1 95 Rural high school 34 18 16 53 Cocoon school (1-8) 26 4 22 15 Common school (1-12) 24 W 5 M County community high 17 16 1 94 •Per cents were rounded to the nearest whole number Responsjlblllty for performing the audit. The responsibility for performing the audit was given to certified public accountants in 51 of the 127 cases which reported as shown in Table IT. This was 40 per cent of all the eases reported In the study. Citlsen committees performed 22 per cent of the audits, local banks 13 per cent, and licensed municipal accountants performed 11 per cent of tka audits. Included among others who performed audits ware a preacher, local business men, school employees. 9 It was further indicated by information collected for this study that certified public accountants performed the largest per cent of audits in the second class city districts, com mo n school dlstricts(l-12) , and the county un— iiITji high school districts. "Rural high school districts sad coram school dlstricts(l-8) generally contracted audit service fro* sources other than certified public accountants and lic ens e d Municipal TABLE IV RESPONSIBILITY FOR PHRfORKDIC THE AUDIT Type of district Number of responses a b c 4 e f Second class city 18 16 I Rural high school 24 4 3 7 5 4 1 Common school (1-8) m 10 5 16 10 6 1 Cqsiin school (1-12) 21 10 4 5 Community high 16 11 1 2 a - Heater of audits performed by certified public accountants, b - Number of audits made by licensed municipal accountants, c - Number of audits made by citizen connlttees. d - Musing of audits and* by local banks, e - Number of audita made by others, f - lource of audit not given. Among the eighteen administrators who indicated reasons for sat having an annual audit, ten administrators stated that it was not tradi- tional to audit. Of the remaining districts that had not audited, seven administrators indicated they did not audit every year and ana admin- istrator indicated that funds vers not available for an audit. Me 10 administrator Indicated that the hoard of education would not give approval for an audit. Audit required as. part, of written hoard poller Aa pointed out in Table V, page 10 of the study, 77 of the 149 respondents indicated that a written hoard policy wee need aa a guide regarding the frequency of the audit. Of this number, 57 had policies which stated that an audit would be made oa a yearly basis. A two-year frequency waa Indicated by one response and two district administrators indicated that their policies were determined by state law. POLICY OK FH QU B IC T OF AUDIT Type of district a 1 c I e Second class city 19 12 1 Sural high school M U 1 2 21 Coisaou school (1-8) 55 19 5 31 Common school (1-12) 24 11 4 County community high 17 5 I 1 5 fist all Ml 57 1 1 1 16 72 a - Indicates frequency prescribed is yearly. b - Indicates frequency prescribed in once each two years. e - Frequency aa prescribed by law, d - Indicates frequency is dependent on board action. e - Ho frequency Indicated. f - Indicates districts that hams no board policy. 11 Audit requested by admlnls era tor s on aopUca^on for position 11m study results indicated that of the 129 respondents , 47 had requested an audit of the districts funds on application for the position they occupied during the 1963-64 school year. It was further indicated la Table 71 that 37 respondents did not request an audit. The reason stated by 45 of the 82 administrators who had not requested an audit was that an audit had been made by the district prior to their acceptance of the position. It was significant to the author that 46 of the 47 admin- istrators that had requested am audit did get the request granted. TABLE VI AUDIT REQUESTED IT ADMINISTRATORS Type of Audit Not No Previous district Responses requested granted request audit Second class city 9 6 3 Rural high school 30 9 12 9 Common school (1-8) 49 12 13 22 Common school (1-12) 24 9 1* S 10 County community high 17 11 2 4 ♦This number waa not included in the total for this row Table VI shows that of the 129 administrators who responded, 47 or 36 per cent requested an audit prior to acceptance of the new position. Am audit was not requested by 37 or 29 per cent of the respondents and 45 or 35 per cent had accepted a previous audit. 12 AgdUor'j report. The study results indicated that of the 106 respondents to the question concerning transmission of the audit report to their respective school boards, 105 administrators had done so. One administrator In a common school distrlct(l-8) indicated that the report was not transmitted. Publicity, other than that gives to the board, vaa given to the auditor's report by SA of the 117 administrators responding to the applicable question. Of this number, 40 respondents indicated the type of publicity given. As shown in Table VII, 44 per cent of the second clasa city district administrators gave additional publicity to the audit report. Forty-five per cent of the administrators of the rural high school dis- tricts gave additional publicity to the audit report aa did S3 per cent of those la common school districts ( 1-8) . Fifty-five per cent of the common school dlatrlct(l-12) administrators gave additiosal publicity to the audit report aa did 13 per cent of the county community high school district administrators. Forty-seven per cent of all districts studied gave additional publicity to the auditor' a report. The type and amount of publicity given to the report was varied. The moat com m on practice was indicated by administrators of common school districts (1-8), it— as school districts (1-12) , and rural high school districts and was indicated to be the publicity given the report during the annual meeting. 13 Adainlstrators indicated that the means of obtaining publicity for the auditor's report other than through the annual district meeting vera through local newspaper articles, radio public service progress, and reports to the county clerk. TABLE VII PUBLICITY GIVES AUDIT REPORT Type of Publicity district Responses given Per cent* Second class city 16 7 44 Rural high school 22 10 45 Coonon school (1-8) u 24 55 Concern school (1-12) 20 11 13 County community high 15 2 13 *Per cents vera rounded to the nearest whole number. Budgetary px«c*lcea Table VIII points out that in all five types of districts, less than one-half of the respondents indicated that the audit report helped in preparation of the budget. The study further indicated that in 53 of the 94 districts responding to the appropriate question, budget preparations had not been helped by the audit report. This uusamr represented 56 per cent of the returns. Both types of eejsjsjM school district administrators indicated that 55 per cent of thea had received help by the auditor's report in 14 the preparation of the budget. Only thirteen per cent of the county community high school district respondents indicated that they had been helped by the audit report In budget preparations. TABLE VIII CHANGES IK BUDGETARY PRACTICES Type of Improveme at because of audit district yes no Second class city 2 Rural high school 7 11 Common school(l-8) 19 22 Common school(l-12) 9 10 County commit ty high 6 8 if Icial results of the post audit The study Indicated that the most beneficial outcome of the post- audit in all five types of districts studied was that the audit helped to assure the public of the honesty of the business practices being used. Many respondents Indicated that efficiency in business practices was also a direct result of hawing a postaudlt p e rfo r med. The purposes of this study were to determine to what extent post- audits were being used in Kansas schools at the end of the 1963-64 school 15 year and to identify, if possible, some of the results of the audit aa indicated by the administrators of districts selected for the study. It was found that 86 per cent of the districts studied had had a post audit of their accounts at the end of the 1963-64 school year. It was found that over one-half, or 51 per cent, of the audits performed were made by certified public accountants or by licensed municipal accountants. The remaining audits were performed by a variety of individuals and/or agencies. It was found that slightly more than one-half of all districts studied did have a written policy regarding the frequency of postaudlts. The most c o mmo n frequency indicated was once each year. It was found that 46 per cent of the 47 administrators who had requested an audit previous to acceptance of the position they held during the 1963-64 school year did have their request granted by the board. It was found that the auditor's report was transmitted to the school board by the administrator in 105 of the 106 districts sampled. Lass than one-half of the administrators indicated that other publicity was given to the report. Generally, results of the study showed that all five types of districts had a high rate of post audit performance on the general accounts of the district. The rate of postaudlts performed on activity fund accounts was not as high in rural high school districts, common school districts (1-8), and In common school districts (1-12) . The results 16 of the study showed that common school districts (1-8) rarely required postaudlts of their activity fund accounts. The awareness of the importance of the postaudit on the part of the administrators in all five types of districts was indicated by the large number of administrators who had requested postaudlts when applying for new positions in districts that had not previously audited their accounts. One common school district (1-12) did not grant the request of the administrator for an audit when applying for a new position in that district. The audit report was transmitted to the hoard of education by most respondents. One administrator in a common school district (1-8) Indicated that the report was not transmitted to the board* About one-half of the second class city districts, rural high school districts, aad common school districts (1-8), gave additional publicity to the auditor's report. The study indicated that common school dlstricts(l-12) and county com- munity high school districts rarely gave additional publicity to the report . Administrators responding indicated that in over one-half the dis- tricts budgetary practices had not been Improved as a result of the post- audit. The most beneficial result of the postaudit Indicated was that public awareness of the honesty in the business practices of the district had increased. BIBLIOGRAPHY A* BOOKS u De Young, Chris A. Budgeting In Public Schools . Chicago: John Swift and Company, 19S0. Knesevich, Stephen J. and John Guy Fowlfces. Busin ess Hsnaaomsnt of L ocal S choo l 8ycgcop. Mow York! Harper and Brothers, I960. Mort, Paul R. , Walter C. Reusser and John W, Pol ley. Public School Finance. Third edition. New York: McGraw-Hill Book Coop any, i960. B e e c h es ) , J. E. (coop.) . Kansas Sohoo .l Laws? 1957. Topeke: State Printing Plant, 1958. B. PERIODICALS de Bruin, Hendrick C. "A Closer Look at School District Audits," American School and University. 36:47-48, October, 1963. Erviti, Janes. "State Audits Could Weaken Local Control," School ■jtecu tlve , 72:54-55, August, 1956. Bormen, Loyal V. "A Model State School Audit Statute," School Executive, 73:80-82, March, 1954. Norman, Loyal V. "Conduct, and Report of the School Audit,'" American School Beard Journal, 127:44-45, October, 1953. Bosenstengel, William E. "The Annuel Financial Audit," American School Board Journal. 102:42-43, May, 1941. State Department of Public Instruction, State of taaeae Statistical Annual Renortj. for WSJ^W, County Superi ntendents Reports. Topeka: State Printing Office, 1960. The National Cost of Education Index 1964-65," School Management. 9:106, January, 1965. Ti dwell, Sen B. "Financial School Fund Accounting," American School Board Journal. 134:37-38, May, 1957. United Stetes Department of Health, Education, end Welfare. Public School Finance Programs. Washington: Gove turnout Printing Office, 1960. 19 United States Department of Health, Education, and Welfare. CotMjlesl on for the WW^houee Conference, A Report to the Prertdme. We«hin R tou: C o Ter n aent Printing Office, pp. 6-7, April, 1956. Whit lock , J case v. 'Financial Accounting aad Reporting t Where to Improve, 1 School Life, 43 1 18-21, June, 1961. NPfMHU 21 May 17, 1965 Dear Sir: The enclosed questionnaire Is part of a study, "Status Study of Auditing Practices in Kansas Schools, 1963-64", I am conducting for a Master's Report at Kansas State University. This study has bean devel- oped with the approval and cooperation of ay advisor, Dr. 0. Kenneth 0' Pal Ion. By answering the enclosed questionnaire promptly, you will be doing me a valuable service and contributing, perhaps, information which will be beneficial to all concerned with auditing practices in Kansas schools . Please cooperate in this study by completing the attached questionnaire and returning it in the enclosed envelope by June 4, 1965. In return for your consideration the results of this study will be available to you in September, 1965 by sending s csrd to me. Although I have requested the identity of you, your position, and your school, no person will be identified In the results of this study. Sincerely yours, Donald K. Hedges Director of the Study :sf Enclosure: Questionnaire QUESTIONNAIRE CONCERNING AUDITING PRACTICES IS KANSAS SCHOOLS (1963-64) When you have completed the questionnaire, please return It In the enclosed envelope addressed to: Donald E. Radges 208 Downing toad Scott City, Kansas 67871 Directions: The questions pertain to the 1963-64 school year. Please do not consider an audit by a public utilities accountant aa an audit for the purposes of answering the questions below. Please indi- cate with a cross (X) your answers to the ques- tions. 1. Did your school have a post swdlt of all school accounts in 1963-64? _ Tes 2. Was an audit of the Activity funds made at the sane time? Tea 3. Please indicate below by whom the audit waa Licensed municipal accountant .Certified Public Accountant Other (Please Specify) 4. If no audit wan made, please indicate reason. Funds not available Wot traditional to audit Could not get board approval Audits not made every year J&ther (Please Specify) S. Dees your Board of Education have a written policy aa to how often an audit shall be made? Tea (Pleaae Specify) Ko 23 6. Did you, as highest administrative official, request an audit of all accounts whan being considered for your position? Tea So An audit had baas made the previous year. 7. If you answered question #6 yes, was this request granted? Yes 8. Has the auditor's report transmitted to the school board? Tea 9. Vaa any other publicity given the auditor's report? Yes (Please Specify) mmmm _ 10. Do you feel thst your budgetary practices have improved because of the annual post audit? Yes (Please specify on reverse side) 11. What do you feel is the most beneficial outcome of your annual post audit? Increased efficiency in business practices Improved budgetary practices Helped to assure public of honesty of business practices Helped administration install newer business practices O ther (Please Specify) SCHOOL A STUDY Of EAHSAS SCHOOL AOTITISC PRACTICES 1963-64 DONALD ERFIH HKDCE8 B.S., Kansas State University, 1959 AH ABSTRACT OF A MASTER'S 1000 submitted In partial fulfillment of the requirements for the degree MASTER OF SCIENCE College of Education KANSAS STATE UNIVERSITY Manhattan, Kansas 1965 The purposes of this study were to determine to what extent post-* audits were being used in Kansas schools at the end of the 1963-44 school year and to identify, if possible, sou* of the results of the audit at indicated by the districts selected for the study. For the study, 195 schools were selected from a population of 899 schools of five types of districts. The types of districts included in the study wave, second class city districts, rural high school districts, common school districted-?!), common school districts (1-12) , and county community high school districts. Replies were received from 151 or 77 per cent of the total number •eat. It was found that 86 per cent of the districts in the study had had a postaudlt of their accounts at the end of the 1963-64 school year. It was found that over one-half or 51 per cent of the audits per- formed warm made by certified public accountants or by licensed municipal accountants. The remaining audits were performed by a variety of indi- viduals and/or agencies. It was found that slightly more than one-half of all districts studied do have a written policy regarding the frequency of postaudlt. The most common frequency indicated was once a year. It was found that forty-six of the forty-saves administrators who had requested an audit prior to acceptance of the position they held during the 1963-64 school year did have their request granted by the board of education. It was found that the auditor's report was transmitted to the school Ward by the administrator In a large majority of the districts studied. less than one-half of the respondents Indicated that other publicity was given the report. More than one-half of the administrators responding indicated that their budgetary preparations bed not been Improved as a result of the postaudlt. Generally, results of the study show that all five types of dis- tricts studied had a high rate of postaudlt performance at the end of the 1963-64 school year. The extent of the postaudlt for activity fund accounts vas substantially lower In common school districts (1-8) than In the other four types of districts studied. Only 15 per cent of the common school districts (1-8) had audited this fund. Budgetary procedures in many districts had not Improved as a result of the postaudlt. The beneficial result of the postaudlt most often Indicated by administrators vas that auditing helped to essure the public of the honesty of business practices being used in the school.