run?r INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana In planning and performing our audit of the ?nancial statements of Edgar P. Harney Spirit of Excellence Academy, Inc. (the School) as of and for the year ended June 30, 2017, in accordance with auditing standards generally accepted in the United States of America, we considered the School?s internal control over ?nancial reporting (internal control) as a basis for designing auditing procedures that are appropriate in the circumstances for the purpose of expressing our Opinion on the ?nancial statements but not for the purpose of expressing an opinion on the effectiveness on the School?s internal control. Accordingly, we do not express an. Opinion on the effectiveness of the School?s internal control. During the course of audit, we became aware of the following matters that are opportunities for strengthening internal controls and operating ef?ciency. A separate report dated December 22, 2017 contains our report on the School?s internal control. This letter does not affect our report dated December 22, 2017 on the ?nancial statements of the School. MCL 2017?01 Internal Controls Over Check Disbursements Criteria Pursuant to the existing Accounting Policies and Procedures Manual: 1. Purchases should be properly authorized and not exceed fund or account balances; 2. Goods and services ordered should be for an appropriate school purpose; 3. Goods and services ordered should be actually received and all goods and services received were ordered; Invoices for goods and services should be correct; Purchase amounts should be recorded in the proper funds, accounts and ?scal year; Disbursements for purchases should be supported by adequate documentation; Checks should be written on a timely basis for the correct amount and made payable to the prOper payee; and $499.41? INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 2 MCL 2017?01 Internal Controls Over Check Disbursements, continued Criteria. continued 8. Documentation supporting disbursements should be cancelled in a manner which will prevent duplicate payment. Condition During the course of our audit, we selected a sample of twenty-?ve (25) non?payroll related check disbursements for testing. The results of that testing indicated the following weaknesses in internal control: In nineteen (19) instances there was no evidence of proper authorization or approval for payment, as required by the School?s Accounting Policies and Procedures Manual; In ?ve (5) instances there was no evidence that goods and/or services were for an appropriate school purpose; In nine (9) instances there was no evidence that goods and/or services were actually received and all goods and services received were ordered; In one (1) instance there was a purchase amount recorded for the incorrect account; In seven (7) instances there was no adequate documentation for purchase; In ?ve (5) instances there were no supporting documentation to support disbursement was canceled in a manner which will prevent duplicate payment; In two (2) instances there were payments made to independent contractors for whom we did not note any evidence of Board approval of the applicable contracts with independent contractors nor competitive procurement, as applicable. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 3 MCL 2017?01 Internal Controls Over Check Disbursements, continued @532 Non?adherence to existing policies contained in Accounting Policies and Procedures Manual. men Disbursement not made in accordance with Accounting Policies and Procedures Manual. Recommendation We recommend that internal controls over check disbursements be strengthened to address de?ciencies noted above. Management?s Response and Planned Corrective Action Management agrees with the auditors? comments, and the following actions will be taken to improve the situation. Management will implement a procedure that requires all future contracts and invoices to include in detail all services rendered to the school. In addition, management will also implement a procedure to include supporting documentation for all check disbursements to be stamped paid to insure and prevent duplicate payments. Also management will implement to assure all outside contracts to vendors be approved at board meetings prior to execution. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 4 MLC 2017-02 - Accounting Policies and Procedures Manual Criteria The School?s Accounting Policies and Procedures Manual provides uniform policies and procedures for the management of student activity and other internal School funds. Condition The School maintains an Accounting Policies and Procedures Manual that was prepared by an independent consultant. We noted however, that many of the policies and procedures are not being followed in the day-to?day operations of the School, particularly those involving requirements in Section 6; Operating Procedures, Section 7. 4; A Bank Reconciliations, and Section Property Acquisition. Additionally, the Accounting Policies and Procedures Manual lacks uniform policies and procedures for the handling of the School?s credit card. Cause Non-adherence to existing policies contained in Accounting Policies and Procedures Manual. Effect The above noted aspects of the School?s accounting operations are not being performed in accordance with Accounting Policies and Procedures Manual. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 5 MLC 2017-02 Accounting Policies and Procedures Manual, continued Recommendation We recommend that the School adhere to the policies and procedures contained in its Accounting Policies and Procedures Manual and, if necessary, the appropriate modi?cations be made to the manual to conform to current operations. Management?s Response and Planned Corrective Action Management agrees with the auditors? comments. Management is currently updating and including the appropriate modi?cations to the schools? Accounting Policies and. Procedures Manual to conform to current operations. To strengthen internal controls over credit card use and disbursements, management will include supporting documentation (Credit Card Authorization Form) for all charges, as well as, written documentation stating the business purpose of the charges and names and positions of individuals in the party when Special meals are purchased. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 6 MCL 2017-03 - Timeliness of Year-End Close Out Criteria The accounting records should be prepared in an accurate and timely manner to permit the preparation of the ?nancial statements and other reports in a timely manner and ensure the timely completion of the year?end audit. Condition During the preliminary phases of the audit we experienced delays in the commencement of the audit process due to untimely year?end closeout resulting in delays in our receipt of the year-end ?nancial statements that would be the subject of the audit. We noted that there are no established procedures and related timetable to ensure timely completion of year?end ?nancial reports and other matters. Cause Policies regarding the timetable of the School?s quarterly and annual ?nancial reports are not contained in Accounting Policies and Procedures Manual. Effect The audit was impacted by delays in providing year-end ?nancial statements and other related data. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors . Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 7 MCL 2017-03 Timeliness of Year-End Close Out. continued Recommendation We recommend that the School establish a schedule of year-end closing procedures and related timetable for performance of those closing procedures to ensure the timeliness of year-end closeout and preparation of and year?end ?nancial statements. Management?s Response and Planned Corrective Action Management understands the auditors? concerns as it relates to the current year close out. However, during the current year-end the school was experiencing a total change in administration which included key personnel who performs various functions involved in the year?end closeout and the preparation of year-end document. Management does not anticipate this event occurring again in the near future. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 8 MLC 2017-04 - Segregation of Duties Criteria One of the key concepts in internal control over an entity?s assets is segregation of duties. Segregation of duties serves two key purposes: It ensures that there is oversight and review to catch errors. It also helps to prevent fraud or theft because it requires two people to collude in order to hide a transaction. Condition During the course of our audit, we noted that the Finance Department consisted of one (1) individual during the year?ended June 30, 2017. That individual also performed other duties such as Human Resources related functions that are inconsistent with sound internal control. Cause The size and composition of the School and budgetary constraints are the primary reason for lack of segregation of duties. Effect There is a lack of a segregation of duties resulting in no independent review of various ?nancial reports and reconciliations by someone other than preparer. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc., New Orleans, Louisiana Page 9 MLC 2017-04 - Segregation of Duties, continued Recommendation We recommend that to minimize the risk associated with improper segregation of duties the Human Resources function and other duties incompatible with Finance be assigned to other individuals within the School and we also recommend more involvement by the Board of Directors in the day-to-day operations of the School to minimize the risks associated with a lack of segregation of duties. Management?s Response and Planned Corrective Action Management agrees with the auditors? comments. The School has hired a new Accountant experienced in ?nancial reporting practices of Local Educational Agencies. One of the responsibilities included in the job descriptions of the school Accountant is Human Resource functions. By this function being delegated to the Accountant and no longer being performed by the Chief Financial Officer (The sole person in the Finance Department), this process will minimize the risks associated with a lack of segregation of duties. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 10 MLC 2017?05 - Review and Approval Criteria Review and approval of reports or transactions ensures that there is oversight and review to catch errors. It also helps to prevent fraud or theft because it requires two people to collude in order to hide a transaction. Condition During the course of our audit we noted primarily all accounting duties and account reconciliations (bank reconciliations, etc.) are performed. by the Chief Financial Officer. However due to a lack of segregation of duties there is no. review of those reconciliations by someone independent of the preparer. Cause The size and composition of the School and budgetary constraints are the primary reason for lack of review of someone independent of preparer of various reconciliations and reports. Effect There is no independent review of various ?nancial reports and reconciliations by someone other than preparer. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 11 MLC 2017?05 - Review and Approval Recommendation We recommend that the Finance department be expanded within budgetary constraints and that the Board take a more active involvement in the day-to-day operations of the Finance department to strengthen the review and approval process (independent of the preparer) of various functions and reports prepared within the Finance department. Management?s Response and Planned Corrective Action Management agrees with the auditors? comments. As previously stated management has implemented the essential changes by hiring a new accountant to strengthen the Finance Department and minimizing the risks associated with a lack of segregation of duties. In addition, please note currently the Chairman of the Board receiVes and reviews all bank statements on a basis. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 12 MLC 2017?06 - Donated Materials Criteria It is the policy of the School to record donations of property and equipment at fair market value at the date of donation. Condition During the course of our audit and review of minutes of the Board of Directors meetings we noted it was mentioned that there was a donation of furniture and computers to the School. However, there was no listing of the donated items nor establishment of fair market value of the donated items nor any inclusion of the donated items on the property records of the School. Cause There appears to be a lack of communication and compliance with procedures within the School related to the donations of property and equipment. Effect Unrecorded donations of property and equipment. Recommendation We recommend that the School strengthen it controls regarding the proper identi?cation and recording of items donated to the School. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors . Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 13 MLC 2017-06 - Donated Materials, continued Management?s Response and Planned Corrective Action Management agrees with the auditors? comments. In the near future management will implement procedures to identify whenever items are donated to the school by establishing a listing of all items received including type of item, fair market value of the item on the date of receipt, and the remaining useful life of the item. This procedure will strengthen the internal controls regarding the proper identi?cation and recording of donated items MLC 2017-07 - Unsupported Credit Card Charges Criteria The School maintains an Accounting Policies and Procedures Manual. We noted however, that the policies and procedures do not include the handling of the School?s credit card and its use. Condition During the course of our audit, we obtained a copy of the June 2017 credit card statement to test the liability as recorded in the general ledger associated with the School?s credit card. In conjunction, with our testing we noted that there were three (3) credit card charges totaling $236 appearing on the June 2017 credit card statement. We requested the receipts associated with two (2) of the three (3) credit card charges to ascertain the propriety of the charges but the receipts were unable to be located. Additionally, during our test work we noted five (5) additional card charges also lacked the corresponding receipts associated with those charges. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 14 MLC 2017-07 - Unsupported Credit Card Charges. continued Cause Policies regarding the handling of the School?s credit card are not contained in Accounting Policies and Procedures Manual. Effect The above noted aspects of the School?s use of credit cards are not included in the School?s Accounting Policies and Procedures Manual. Recommendation We recommend that the supporting receipts for all credit card charges be maintained within the ?nance department in support of the charges appearing on the Management?s Response and Planned Corrective Action Management agrees with the auditors? comments. In the near future management will implement procedures to identify all supporting receipts for all credit card charges and will be maintained within the ?nance department for support of the charges appearing on the statements. All charges must be supported by point of sale receipts to be eligible for payment. credit card statements will be reconciled by the ?nance department to the credit card authorization forms. Next they will be reviewed and approved on a basis by the Chief Financial Of?cer. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 15 MLC 2017-08 - Liabilitv for Compensated Absences Criteria The 2016-20] 7 Employee Handbook states ?Upon termination employees shall not receive compensation for personal time accrued. Upon resignation prior to the ful?llment of contractual agreement, employees shall not receive compensation for personal time accrued.? Condition During the course of our audit, we noted that the School recorded on its general ledger a liability for compensated absences in the amount of $19,880 which represents a cap of ten (10) days of accrued leave that will be paid upon separation. However, based on our review of the 2016-17 Employee Handbook, it states that ?Upon termination employees shall not receive compensation for personal time accrued. Upon resignation prior to the ful?llment of your contractual agreement, employees shall not receive compensation for personal time accrued?. Cause Accounting treatment for compensated absences not properly re?ected in the Employee Handbook. Effect The accounting treatment for compensated absences is inconsistent with language in the Employee Handbook. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 16 MLC 2017-08 - Liability for Compensated Absences Recommendation We recommend that management and the Board clarify its policy regarding treatment of compensated absences upon separation and that policy be accurately re?ected in the Board approved Employee Handbook. Management?s Response and Planned Corrective Action Management agrees with the auditors? comments. However, it was the intent and approved by the board of directors, that upon termination of employment, employees shall receive compensation for personal time accrued up to ten (10) days. Management will make the approved and intended changes to the Employee Handbook. INDEPENDENT AUDITORS COMMENTS TO MANAGEMENT CONTINUED To the Board of Directors Edgar P. Harney Spirit of Excellence Academy, Inc. New Orleans, Louisiana Page 17 Status of Prior Year Management Letter Comments Partially Resolved Resolved Unresolved 2016-01 Internal Controls Over Check Disbursements 2016?02 Accounting Policies and Procedures Manual 2016?03 - Accounting Policies and Procedures Manual We will review the status of these comments during our next audit engagement. We have already discussed these comments and suggestions with various School personnel, and we will be pleased to discuss them in further detail at your convenience, to perform an additional study of these matters or to assist you in implementing the recommendations. This communication is intended solely for the information and use of management, the Board of Directors, others within the School and the Louisiana Legislative Auditor and should not be used by anyone other than these speci?ed parties. Under Louisiana Revised Statute 24:513, this report is distributed by the Louisiana Legislative Auditor as a public documents. qu/KW BRUNO TERVALON LLP CERTIFIED PUBLIC ACCOUNTANTS New Orleans, Louisiana December 22, 2017 .n