Boards Don’t Need State Oversight
Patrick J. Manley and Robert J. Manley
2005 - Corporate management scandals and ethical failures
occur when boards of directors fail to oversee the work of
senior executives. The board is ultimately responsible for
the integrity of the business and should not delegate control
of checks and balances to subordinates. Imprudent delegation
of authority to subordinates is especially problematic for
school boards, where the average tenure of board members is
less than five years.
York State Comptroller Alan Hevesi has stated that school
districts should be audited more frequently by state and
external auditors. In his book Out of Crisis, Edwards
Deming explained how inspection will not improve a faulty
system. To change the weak and ineffective systems of board
oversight of financial practices in school districts, school
boards need a clear method of audit control. Most school
boards lack the financial reporting skills to establish
clear and appropriate procedures for an audit committee.
a study of school board financial practices in New York
State conducted by Carol Eisenberg of Dowling College, less
than 40% of trustees agreed that their boards matched planned
expenditures against revenues on a monthly basis or asked
questions about the monthly district treasurer’s report.
Only 42% of board members agreed that they examined fund
balances at least twice each year, and only 46% reported
that they asked for justifications of a transfer of appropriations.
H.S. Grace, in The CPA Journal (March 2002), stated:
“The board with and through its audit committee must
accept the ultimate responsibility for the quality and integrity
of the risk and control environment.” Most boards
report that they do not consistently practice the financial
procedures that fiduciary experts would require.
can school boards ensure the financial integrity of the
school district? First, each school board should have a
policy that establishes a board audit committee composed
of two board members, an internal auditor appointed by the
board, the district treasurer, and the business official.
Their duties should be to verify annually that the checks
and balances within the financial system are operating as
described in the board’s policy. Board policy should
provide answers to the following questions:
Is the person who approves a purchase order different
from the one who pays it?
Do all vendor checks appear on the warrants and receive
Are all nonpayroll checks written to senior executives
reviewed by the audit committee and approved by the board?
Is there an annual audit procedure for all payroll checks?
Is there an annual audit procedure for inventory?
Are two independent signatures required for authorizing
all checks before the treasurer signs them?
Does the board have a procedure to project costs for all
contracts before approval?
order for audit committees to perform adequately, members
must share expertise in accounting, internal controls, audits,
and financial reporting. John Biggs, former president of
TIAA-CREF, noted in the Journal of Financial Practice
and Education that the entire financial reporting process
is fragile and relies upon the integrity of all parties.
To function properly, most school boards will need training
in some basic tasks. School boards should establish internal
audit committees to guide the financial integrity of the
district. School boards should also examine their policies
and practices regarding financial reporting. Checks and
balances within the financial system should be examined
annually, and external auditing firms should be required
by board policy to conduct a public evaluation as part of
the normal annual audit.
boards don’t need the state comptroller to do their
work; they need to have clear direction and guidance about
their financial duties. The external auditors that make
considerable money from school districts should be required
in their contracts to train boards and their audit committees
in their financial duties. New York State school boards
don’t need another layer of costly bureaucracy applied
to their overly burdened work. They need their own professional
and external auditors to do a better job educating them
and guiding them to achieve sound financial practices.
J. Manley, MBA, is a financial advisor.
Robert J. Manley, PhD, is chair of the department
of educational administration at Dowling College, Oakdale,