Summary

Summary of Report on Financial Statements

The Okaloosa Academy, Inc., has prepared its financial statements for the fiscal year ended June 30, 1998, in accordance with prescribed financial reporting standards.

Because of the unprecedented nature of the year 2000 issue, we do not provide assurance with regard to the ultimate impact of the year 2000 issue on the Okaloosa Academy, Inc.

Summary Report on Compliance and Internal Control

The School generally complied with significant provisions of laws, administrative rules, regulations, contracts and grants, and other guidelines. The School has established and implemented procedures which generally provide for internal control of School operations. We did note internal control findings and other matters which are summarized in the Summary of Audit Findings section below.

Summary of Audit Findings

Procedures and Practices

Established procedures and practices provide guidance for employees in carrying out their duties and responsibilities and in conducting the day-to-day operations of the School. School personnel indicated that operating procedures and practices for certain areas had not been developed and reduced to writing. Such procedures and practices may be beneficial to address such matters as budget preparation and amendment, long-term planning, accountability and control of tangible personal property, the receipt and deposit of funds, and the acquisition of goods and services including the awarding of contracts, and preaudit of vendor invoices and disbursement of funds. The effective implementation of these enhanced procedures would provide needed controls. We recommend that the School give appropriate consideration to the development of written procedures and practices in these areas pertinent to the operations of the School.

Operating Expenditures - Management Consultant Contract

The School contracted with a management consultant to oversee the operation of the School. Our review disclosed that net payments paid by the School to the consultant for management services totaled $192,877.58, or $13,902.21 more than what the consultant was entitled to pursuant to the contract terms. Subsequent to our bringing this matter to the attention of School management, the consultant reimbursed the School the $13,902.21 that was overpaid. To ensure that consulting bills are paid in accordance with grant terms, the School should strengthen procedures for review and approval of bills for contractual services to ensure that payments are made in accordance with contract terms.

In addition to the fees for management services, the School reimbursed the management consultant for expenses totaling $80,898.33. Our review disclosed that $26,516.01 of these expenses was for equipment and supplies for the School, leaving $54,382.32 in other expenses. Included in the $54,382.32 in other expenses were $13,183.36 in expenses that were claimed more than once and $17,460.95 in travel expense for the personal business of the management consultant. After we brought this matter to the attention of School personnel, the consultant reimbursed the School a total of $54,382.32. The School should strengthen its preaudit procedures relating to reimbursement claims to ensure that the expenses are reasonable and for the business of the Okaloosa Academy. Further, such preaudit procedures should ensure supporting documentation is available for all reimbursement claims and that only original bills or invoices be used for reimbursement. Additionally, procedures should be developed to ensure that all bills and invoices are canceled when paid.

Year 2000

Unless corrected before January 1, 2000, many computer applications will either stop working or, worse, begin producing erroneous results on or before that day. The year 2000 problem is a two-digit-year representation problem. Although the year 2000 problem’s impact on the operations of the School may be limited due to the size of the School’s operations and the limited number of computer resources affected, School management should take appropriate action to ensure that existing computer resources and any computer resources purchased in the future are year 2000 compliant.

The School’s written response to the audit findings and recommendations included in audit report No. 13370 is presented as Exhibit D.