Employee benefits, including separation and sick time buyback payments, represent significant financial commitments for school districts. Such payments are governed by collective bargaining agreements (CBAs), individual employment agreements, and applicable District policies. Given that separation payments and buyback of unused sick time can constitute substantial expenses for a school district, it is essential to maintain detailed and accurate leave accrual records. Additionally, these payments must be properly supported, independently reviewed, and approved before being disbursed. Ensuring accuracy from the outset is crucial as overpayments can be challenging to recover and underpayments can lead to employee disputes or even legal issues.
As the school year draws to a close, school districts often experience an increase in separation and buyback payments, particularly with the rise in retirements. As internal auditors, we evaluate whether the district has implemented effective procedures and internal controls to ensure these payments are accurate and compliant with employment agreements. Our reviews have identified common issues, including a lack of documented procedures, insufficient oversight, and misinterpretations of bargaining agreement language. To help prevent errors and ensure compliance, here are some key practices to consider when processing these payments:
- Establish Formal, Documented Procedures
In the audit world, there’s a saying: “If it isn’t documented, it doesn’t exist.” While staff may be familiar with the steps involved in calculating and approving separation payments, relying on institutional knowledge alone can lead to inconsistencies and errors. Clearly defined, written procedures ensure that all necessary steps—such as verifying compliance with contractual language, reviewing calculations, and maintaining supporting documentation—are consistently followed even when key employees involved in the process separate from the District. - Maintain Accurate Attendance Data
Accurate and up-to-date attendance records are essential for properly calculating separation and buyback payments. Financial systems like nVision and WinCap include fields to track an employee’s status, tenure, and position history, all of which are critical for determining eligibility and payment amounts. Tracking an employee’s length of service within the district—as well as their current role at the time of separation—ensures that the correct buyback or separation payout is applied based on their specific contract terms. However, maintaining accurate attendance and employment records requires ongoing review and verification—an area that often warrants its own audit to prevent miscalculations and compliance issues. - Review and Validate Spreadsheets
Even with strong procedures and reliable data, formula errors in spreadsheets can cause miscalculations that may not be caught until after payments are made. A simple but effective control is to have a second reviewer manually verify the calculations. Additionally, locking formula cells can help prevent accidental overwrites that could compromise accuracy. - Carefully Interpret Contract Language
Employee contracts often evolve over multiple negotiation cycles, sometimes leading to ambiguous or conflicting terms. If the language surrounding separation or sick time buyback payments is unclear to you, it will be unclear to auditors as well. When in doubt, consult legal counsel to confirm that payments align with the intent of the agreement. If past practices have deviated from the intended interpretation, corrective action may be necessary.
If you discover that your district has been interpreting contract language differently than intended, refer to Guercio’s article, “Undoing Past Practices,” for guidance on addressing and correcting past practices.
By putting strong procedures in place and ensuring careful oversight, districts can avoid costly errors and provide employees with the accurate payments they’ve earned. A little diligence now can save a lot of headaches later!
Erin Teta, CIA
Director
Erin is a Director of Cerini & Associates, LLP and works primarily within the firm’s education department. She has a robust background spanning over 15 years in Internal Audit, SOX compliance and Claims Auditing. She has worked with school districts, villages, nonprofit organizations, telecommunications and higher education.
Adam Brigandi, CPA, MBA
Supervisor
Adam is a Supervisor who works with both nonprofit and education clients. His auditing experience allows him to assist in vital audit functions such as systems testing and analysis.
