Meeting of the Board of Regents | May 2008

THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234

TO:

Subcommittee on Audits

FROM:

Theresa E. Savo 

SUBJECT:

Board of Regents Oversight – Financial Accountability

DATE:

May 5, 2008

STRATEGIC GOAL:

Goal 5

AUTHORIZATION(S):

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

Date:  May 2008

Time:  TBD

Location:  TBD

TOPIC

OUTCOME

WHO

MINUTES

Opening Remarks

Chair

3

Review Agenda/Minutes (Attachment I)

Approval

Conway

2

Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment II), Summary of Audit Findings (Attachment III), and Audit Report Abstracts (Attachment IV)

Questions answered

OSC and Department Audit Staff

20

Audit Trend – Procurement (Attachment V)

Information

OAS Staff

20

Executive Session

Information

Department Staff

15

Audit

Procurement

Claims Processing

Payroll

Cash

Financial Reporting

Information Technology

Segregation of Duties

Conflict of Interest

Finger-

printing

  Budgeting

Office of the State Comptroller

Amber Charter School

√

√

√

 √

*Brooklyn Charter School

√

√

Canaseraga Central SD

√

Chappaqua Central School District

√

√

 √

Community Partnership Charter School

√

√

Cortland City SD

√

√

√

Duanesburg Central SD

√

√

√

√

√

East Syracuse-Minoa Central SD

√

√

√

√

Eastern Suffolk BOCES

√

Frankfort-Schuyler Central SD

√

√

Gloversville Enlarged SD

√

Hamburg Central SD

√

√

√

Hastings-On-Hudson Union Free SD

√

√

√

Herkimer-Fulton-Hamilton-Otsego BOCES

Kipp Academy Charter School

√

√

√

Liberty Central SD

Little Flower Union Free SD

√

√

√

Audit

Procurement

Claims Processing

Payroll

Cash

Financial Reporting

Information Technology

Segregation of Duties

Conflict of Interest

Finger-

printing

  Budgeting

Merrick Academy Charter School

√

√

√

Monroe-Woodbury Central SD

Montauk Union Free SD

√

√

**New York State Education Department – RESCUE Act

Our World Neighbor Charter School

√

√

√

√

Patchogue-Medford Union Free SD

Plainview-Old Bethpage Central SD

Randolph Central SD

√

√

St. Regis Falls Central SD

√

√

Salamanca City SD

√

Schenectady City SD

√ 

Sodus Central SD

√

√

Tuckahoe Common SD

√

√

Tully Central SD

√

√

√

√

√ 

Valhalla Union Free SD

√

√

√

Wappingers Central SD

√

√

May 2008 Total

9

9

13

13

5

8

4

2

5

1

May 2007

June 2007

July 2007

October 2007

December 2007

January 2008

February 2008

March 2008

April 2008

May 2008

Running Total

Procurement

9

11

12

20

12

11

12

6

4

9

106

Capital Assets

10

1

2

4

0

0

0

0

1

0

18

Claims Processing

13

3

12

17

17

18

13

6

9

9

117

Payroll

12

3

11

20

18

14

12

5

12

13

120

Cash

6

2

8

15

14

15

8

5

7

13

93

Financial Reporting

12

3

2

16

6

11

4

7

3

5

69

Information Technology

10

10

9

14

15

15

17

6

4

8

108

Capital Construction

2

1

1

0

0

1

0

0

0

0

5

Extraclassroom Activity Fund

1

1

0

1

1

2

1

0

0

0

7

Segregation of Duties

0

0

3

0

15

19

0

4

6

4

51

Budgeting

2

3

0

1

1

0

1

1

0

1

9

Conflict of Interest

0

0

0

4

3

3

0

0

0

2

12

Fingerprinting

0

0

0

0

0

0

0

0

0

5

5

Other

0

2

0

0

0

1

1

3

0

2

         10

Total

77

40

60

112

102

110

69

43

46

71

730

Office of the State Comptroller

Audit

Major Finding(s)

Recommendation/Response

Amber


Charter School


  Financial Management Practices

2007-S-101

1st Judicial District

Monthly bank reconciliations were not performed on a timely basis and were generally inaccurate. School staff prepared “preliminary” bank reconciliations using incorrect general ledger balances.

The petty cash fund maintained by the facilities director was kept in her personal bank account off school premises.

Amber officials did not obtain either oral quotes or written bids for 14 out of 17 contracts (totaling $958,000). Amber also paid its cleaning contractor $9,730 for cleaning supplies and services, above and beyond what was required by the contract.

Amber also does not maintain adequate fixed asset inventory records. The general ledger showed that Amber had invested over $150,000 in equipment, some of which is susceptible to theft.

Lastly, pay increases were processed accurately, but it was noted that the chief financial officer received a pay increase of almost 19 percent in one year, in addition to a $5,000 bonus, without evidence of board approval.

12


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial oversight, financial practices, fixed asset inventory, payroll, and new employee documentation.

Officials generally agreed with the recommendations pertaining to fingerprint clearance, petty cash, documentation for oral biddings, fixed asset inventory reports, new employee documentation, and payroll.

Officials partially agreed with the recommendations regarding bank reconciliations, non-payroll expenditures, and contracts.

Brooklyn


Charter School

Financial Management Practices

2006-N-9

2nd Judicial District

The School lacks an adequate system of internal controls over basic financial operations. The board and school officials need to strengthen compliance with the internal controls outlined in their Internal Controls of Assets Policies and Procedures Manual. The board oversight at the School has been weak since the School’s inception.

Individuals did not always comply with established procedures before making cash disbursements. Twenty-seven of the 35 disbursements tested did not have adequate supporting documentation, such as pre-approvals, purchase orders, invoices, and/or receiving reports. Brooklyn officials also failed to maintain the petty cash fund in accordance with the manual. There were transactions that exceeded the approved dollar limit and there was a need to improve petty cash recordkeeping.

Payroll records were also not being maintained properly or reviewed to ensure that employees were paid only for time worked. Three employees were not paid the correct rate of pay and were underpaid $2,160 from September 2005 through June 2006.

Thirteen of the 43 program payments from the test preparation program, and 26 of the 43 related timesheets lacked certain required approvals. The School also treated the assignment of their employees to the after-school program, as an independent contractor service, and as a result, Brooklyn officials were not including after-school program payments in the W-2’s of their employees who provided program services.

Lastly, Brooklyn Charter School officials did not maintain adequate control over the School’s equipment inventory. The School neither maintained perpetual inventory records, nor performed a physical inventory of its equipment at least once a year. The School also had no policies for the proper control of equipment.

8


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial oversight, cash disbursements, the petty cash fund, payroll and personnel services, and equipment and inventory.

Brooklyn Charter School officials generally disagreed with the majority of the recommendations. While they did agree there were occasional mistakes with issues relating to supporting documentation, missing signatures in payroll, pay rate accuracy and equipment and inventory policies, Brooklyn officials state that all problems have since been addressed and corrected, and no further errors have been made.

Canaseraga


Central School District

Internal Controls Over Cafeteria Cash Receipts

2008M-10

8th Judicial District

Internal controls over cafeteria cash receipts were not appropriately designed or operating effectively. The three cafeteria employees shared a common cash drawer and used the same password to access the Point-of-Sale software at the register, potentially preventing the identification of specific employees responsible in the event of a significant cash shortage or overage. The treasurer counted the cash without the cafeteria manager being present, and did not issue a receipt to the cafeteria manager as evidence of the amount remitted. The treasurer also did not compare the deposit amount to the cafeteria sales report to verify that the amount collected and deposited each day was accurate.

Fifty-two cafeteria receipts were examined (totaling $9,018) over a three-month period. One or more reports were not available for 23 of the deposits (totaling $7,632), and none of the sales reports supporting the other 29 deposits contained evidence that the person responsible for the cash drawer compared the daily cash drawer total to the report.

5


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cafeteria cash receipts.

District officials agreed with the recommendations pertaining to procedures for collecting and accounting for cash received in the cafeteria operation. They have also established a procedure to ensure that the sharing of cash drawers is no longer a problem. Officials are also designing a schedule that will allow the counting of cash in the presence of the cafeteria manager.

Chappaqua


Central School District

Internal Controls Over Selected Financial Activities

2008M-3

9th Judicial District

The District did not use competitive bidding when it made purchases of approximately $455,000 from 11 vendors, including approximately $117,000 for compressor equipment, $101,000 for phone service, and $31,000 for tent rentals. Additionally, the District did not have adequate policies and procedures as required by law for procuring professional services which are exempt from bid requirements. The District paid a total of $419,000 for professional services without the benefit of competitive quotes or RFPs. The District also did not have written board-approved agreements with nine special educational services contractors who were paid $348,000.

The board also did not ensure that the claims auditor thoroughly audited contractors’ claims for special education services before approving them for payment. One contractor who was paid $194,000 for physical therapy services, claimed hours in excess of her scheduled work hours, and travel, meal, and break time to which she was not entitled. Three contractors also received a total of over $5,800 in improper compensation. Claims from 17 providers totaling approximately $229,000 did not have hours of service itemized as required.

Lastly, District officials did not perform fingerprint-supported criminal background checks on 26 independent contractors who had direct contact with students and file them with the New York State Education Department, as required by law.

6


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding purchasing, the audit of special education claims and criminal background checks.

District officials accepted the three recommendations made in the area of purchasing. Pertaining to competitive bidding, officials stated that each service purchased was kept under the bidding threshold, and that they used the most reputable vendor in the geographic area. The District also stated that it signed a security monitoring agreement and is afraid that if there is a change of security equipment, that the safety of the students may be compromised. Additionally, officials claimed that their expenses were legitimate. Finally, the District agreed with the finding regarding background checks, and have implemented corrective action.

Community


Partnership Charter School


  Financial Management Practices

2007-S-103

2nd Judicial District

The School has established and maintained an adequate system of controls over some of its financial operations. However, the system of controls at the School could be strengthened in the following areas: employee background checks, cash disbursements, and procurement.

Two school employees had not been fingerprinted as required. Additionally, eight school employees who began working at the School before receiving fingerprint and background clearances did not receive Emergency Clearances by the board of trustees, as required by law. There was also no evidence of fingerprint clearance for one consultant who had direct contact with students.

The School did not have a document in place to reflect the prior approval of purchases. The School was also not in compliance with its credit card procedures because we identified payments valued at $2,177 that were not adequately supported.

Lastly, school officials did not always solicit multiple bids to ensure the best value is obtained. There was no evidence that required telephone or written quotes were obtained for purchases totaling $8,432.

9


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight and composition, employee background checks, the annual independent audit, supporting documentation, credit cards, duplicate payments, foundation salary allocation, sales tax and procurement.

The School officials generally accepted all of the recommendations pertaining to the state fingerprinting laws, supporting documentation, duplicate pay-ments, salary allocation, sales tax, and procurement. They have addressed the majority of the concerns, however, the School is still in the process of recruiting board members and investigating the appropriate procedures and systems to effectively address time sheet issues.

Cortland


City School District

Internal Controls Over Selected Financial Operations

2007M-302

6th Judicial District

The purchasing agent did not approve 135 of the purchase orders or any of the 41 blanket purchase orders for the 2006-07 fiscal year. There was also no documentation to  determine the legitimacy of 62 purchases, if goods and services were received for 11 purchases, or to explain why vendor invoices for two purchases exceeded the purchase order amounts. There was no supporting documentation to indicate who made 20 credit card purchases or to indicate if they were authorized users.

The board also did not provide for a proper audit of claims. There was no effective system in place prior to May 2007, to ensure that 7,211 claims totaling $57.2 million were properly authorized, documented and approved. The claims auditor did not perform a complete and thorough audit of claims or approve warrants to authorize the treasurer to disburse funds. The claims auditor approved 10 of the 16 claims totaling over $19,500 even though they were not approved by the appropriate District officials prior to purchase.

The board also failed to segregate the treasurer’s duties or implement compensating controls. The treasurer also failed to supervise and control the use of her facsimile signature or compare signed checks to certified warrants for accuracy before distributing checks.

8


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding purchasing, claims auditing, and treasurer’s duties.

District officials agreed with the recommendations pertaining to monitoring adherence to purchasing policies and procedures, the claims auditor and compliance reports, the duties of the treasurer and mitigating controls to assure that checks and balances are in place. They have indicated that they will initiate corrective action, if they have not already done so.

Duanesburg


Central School District

Internal Controls Over Selected Financial Activities

2007M-279

3rd Judicial District

Duties in the payroll function were not adequately segregated and, although the District had mitigating controls in place, they were not sufficient. District officials also failed to consistently comply with provisions in the District’s employment agreements concerning the accumulation of leave time. As a result, some District employees received benefits that the District did not intend to provide.

The District procurement policy did not provide proper guidelines for purchases in amounts less than the bidding minimum. Eighteen out of 31 claims tested, totaling $426,292, were paid prior to being audited by the claims auditor.

Additionally, there was no formal disaster recovery plan in place for the District.

Lastly, the BOCES employee serving as the District’s internal auditor is not independent in performing the internal audit function.

8


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding payroll, purchasing and claims processing, information technology, and the internal auditor.

The District officials have stated that they will make the payroll audit binder an intricate part of the payroll certification process, and will seek to expand its procurement policy and the language in the board policy. The District also stated that they will develop a formal disaster recovery system.

East


Syracuse-Minoa Central School District

Internal Controls Over Selected Financial Operations

2008M-17

5th Judicial District

There were internal control weaknesses in controls over cash disbursements, claims processing, payroll, and access rights to the District’s accounting system.

The treasurer did not have control over his facsimile signature and was not involved in the check-signing process. The accounts payable clerk and the payroll clerk used the treasurer’s signature to make payments without his supervision. District officials also did not monitor payment activity on the District’s accounting system to compensate for lack of duty segregation.

The claims auditor did not review or sign the warrants authorizing payment of claims or compare the warrants with the audited and approved claims. The three key payroll functions were not properly segregated, and the reviews done by the treasurer and internal auditor were not sufficient to mitigate the risk posed by having the payroll clerk perform incompatible duties.

Lastly, user access rights to financial data assigned by the business administrator in the accounting system did not adequately restrict access based on the duties and responsibilities of business office staff.

10


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash disbursements, claims processing, payroll, and internal controls over computer data.

District officials stated that they welcome the feedback and will address the findings and recommendations in the corrective action plan.

Eastern Suffolk


BOCES Student Management Systems

2008M-24

10th Judicial District

The BOCES maintains two web-based student management systems through an outsourcing arrangement with two third-party service providers, and contracts define the roles and responsibilities of the parties involved. The contracts do not specifically define, nor are BOCES officials familiar with, the internal controls that are in place at the providers to protect the sensitive/confidential data with which they have been entrusted.

2


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding student management systems.

The BOCES officials generally accepted the recommendations regarding the controls of web-based student management systems, future contracts and the storage of confidential data. The BOCES has agreed to implement corrective action.

Frankfort-Schuyler


Central School District


- Internal Controls Over Cash Disbursements

2008M-23

5th Judicial District

Cash disbursement duties were not properly segregated and compensating controls were not established. The treasurer maintained the accounting records, and with the exception of the payroll bank account, prepared and made deposits, signed checks, initiated bank wire transfers, made cash transfers between funds and reconciled bank accounts. The business administrator reviewed bank reconciliations and also made transfers between bank accounts and recorded journal entries. Further, the business administrator did not sign any checks, even though he was authorized to do so.

Additionally, hand stamps were used to affix both the treasurer and the superintendent’s signature and neither of them properly control the use of their signature stamps. The business administrator was also made an authorized signatory for payroll and accounts payable in order to sign checks in the treasurer’s absence, however, only a deputy treasurer or board member can do this, and only with board authorization.

5


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash disbursements.

District officials agreed with the recommendations pertaining to the segregation of duties, check processing software, and signature stamps. They have indicated that they plan to initiate corrective action shortly.

Gloversville


Enlarged School District - Internal Controls Over Claims Processing

2008M-6

4th Judicial District

The board members interviewed stated that they do not look at each claim, and instead only scan the abstracts and select certain claims for review. Board members are not able to ensure that each claim is supported by adequate documentation. The inadequate auditing of claims heightened the risk that innapropriate payments could be made to vendors. Several claims reviewed lacked sufficient documentation such as purchase orders and detailed receipts. In addition, some of the purchase orders were prepared after the District had already received the goods or services.

Eleven selected claims related to 60 credit card purchases were not supported by a purchase order and 30 lacked sufficient documentation. Additionally, 29 claim packets had purchase orders prepared after receipt of goods and services.

3


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding claims processing.

District officials stated that they agreed with the finding that a more thorough audit would enhance the current procedures and minimize the risk that an inappropriate payment could occur. Additionally, the District will be reviewing its current purchasing policy as they relate to purchase orders to further enhance the system of internal controls.

Hamburg


Central School District


- Claims Processing and Related Purchasing Activities, and Private Purpose Trust Funds

2008M-21

8th Judicial District

Stress

The District’s purchasing agent is not properly authorizing purchase orders and improperly using blanket purchase orders. District officials indicated that most blanket purchase orders are prepared with a $1 limit because the financial software does not allow them to enter a purchase order without a dollar amount. The District also does not require quotations for purchases made through blanket purchase orders. During the 2006-2007 fiscal year, a total of 199 blanket purchase orders with a $1 limit, were processed.

Thirty-seven out of the 74 claims ($649,242) tested did not include adequate supporting documentation, 30 claims did not indicate approval by the purchasing agent, three claims had no indication of approval by the claims auditor, and two claims were for questionable expenditures.

In March 2007, the District improperly transferred $83,000 of trust funds held for student scholarship to the Hamburg School Foundation (Foundation), a not-for-profit formed in 2001 to secure resources for the enrichment of the District. The Foundation then invested the money into a mutual fund.  The board had no authority to transfer these trust funds. All the District's private purpose trust funds are used for student scholarship.These moneys are invested in certificates of deposit until scholarships are awarded.  Further, mutual funds are not a legally permissible investment vehicle for district moneys or moneys under its custody.

The board president also had a significant interest in the Foundation’s operations. In addition, another district board member was also simultaneously a director for the Foundation.

6


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding claims processing and related purchasing activities and private purchase trust funds.

District officials agreed with the recommendation pertaining to the blanket purchase orders with the $1 limit, and that practice has since been abolished. Staff and the board of education are also regularly sharing financial information and the board has also retrieved the $83,000 in trust fund assets to the Hamburg School Foundation. Lastly, the director of public relations from the Hamburg School Foundation has resigned, and there is no longer a conflict of interest between the District and the Foundation.

Hastings-on-Hudson


Union Free School District

Internal Controls Over Selected Financial Activities

2007M-303

9th Judicial District

District officials have not adopted policies and procedures to address password and log-in security requirements. The District had no formal procedures for the proper authorization, assignment, and the documentation of user access rights to the computer system. The business official assigned certain business office employees user rights that were not consistent with their duties, thus creating a weakness in the segregation of duties within the financial software application. Additionally, the user rights of five former employees were not terminated in a timely manner when employees left District service.

There have been no policies adopted that address changes made to the District’s computer hardware and software systems, and the risks associated with the outsourcing of IT functions have not yet been assessed. A formal disaster recovery plan has also not been implemented.

The payroll and accounts payable clerks had unsupervised access to the treasurer’s signature disk and retained custody of checks until they were mailed. The treasurer also failed to compare checks to an approved claims warrant or certified payroll register before or after they were signed.

Lastly, the payroll clerk’s duties were not adequately segregated, and included entering all payroll changes, processing the payroll, and distributing the payroll checks. In addition, the board did not authorize payments made in excess of $17,000 to the director of technology for additional administrative technology consulting work.

11


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding information technology, cash disbursements and payroll.

District officials have accepted the recommendations regarding information technology, cash disbursements, and payroll. They have agreed to centralize the storage of all software and license agreements and have created a policy to ensure that the payroll clerk and the accounts payable clerk are only using the signature disk under direct supervision. Lastly, the District has developed another policy to periodically review changes to employee pay or benefits, in order to monitor whether or not changes are properly authorized and documented.

Herkimer-Fulton-Hamilton-Otsego Board of Cooperative Education Services Internal Controls Over Payroll

2008M-27

5th Judicial District

The payroll clerk was responsible for adding new employees to the payroll system, entering pay rates, processing payroll, making online transactions, and printing checks. These incompatible duties could allow the payroll clerk to initiate inappropriate transactions and conceal them.

At the beginning of the 2007-2008 fiscal year, management implemented corrective measures and the segregation of duties problems were eliminated by giving the responsibility of adding new employees and entering employee pay rates to the human resources clerk, and finally, the payroll clerk’s computer access to perform such tasks were removed.

0


recommendation

There were no recommendations.

Kipp


Academy Charter School

Financial Management Practices

2006-N-15

12th Judicial District

Some of the individuals hired by the School did not undergo a criminal history record check. In fact, the required criminal history clearance was not documented for 7 out of 37 employees that were reviewed.

The Kipp Academy also paid $67,951 to send 49 staff on a five-day trip to the Bahamas and 21 staff on a five-day trip to the Dominican Republic. School officials told us the trips were educational because staff development retreats were held at the two locations, but there was very little documentation to support that explanation. It could also not be determined whether the trips were paid for with donated funds, because such funds are not accounted for separately from the School’s other funds (mainly State Aid).

Additionally, special bonuses, special stipends, pay increases, overtime payments, and other types of payroll transactions were not adequately documented. As a result, there was less assurance such transactions were always authorized and appropriate.

13


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight, new employees, annual independent audit, use of donated funds, procurement, disbursements, and payroll. 

Kipp Academy officials stated that they agreed with the majority of the recommendations, and many of the recommended changes went into effect in July of 2007.

However, officials disagreed with certain language used in the report pertaining to fully documenting and obtaining written approval for the Academy’s off-site staff development retreats, and as a result they feel that the educational importance of such events is undervalued. The Shool also believes that the principal should be allowed to authorize salaries and bonuses within present limits.

Liberty


Central School District

2008-2009 Tentative Budget

B4-8-5

3rd Judicial District

The District’s significant revenue and expenditure projections in the proposed budget are reasonable.

0


recommendation

There were no recommendations.

Little Flower Union Free School District  Financial Condition and Internal Controls Over Selected Financial Activities

2007M-284

10th Judicial District

The District is a Special Act Public School that employs 70 individuals and provides services to 110 students. The State Education Department establishes, and the New York State Division of the Budget approves, the rates that the District may bill each district or county.

The general fund unreserved, unappropriated deficit increased from $223,997 as of June 30, 2003 to $870,397 as of June 30, 2006, primarily due to the failure to prepare and adopt accurate, realistic and balanced budgets, properly monitor expenditures and bill tuition on a timely basis. The audit also found a poorly defined contractual relationship with Suffolk County for tuition billings and payments. Appropriations were over expended by a total of $17,866, $1,931,510 and $765,162, respectively, for 2003-2004, 2004-2005 and 2005-2006. Further, it is unclear if the District will receive payment from the County for retroactive tuition billings totaling over $296,000 and approximately $42,000 for the cost of tutoring certain students.

Controls over claims processing were not appropriately designed and operating effectively. The board did not establish policies and procedures for the claims audit function, and the certified public accounting firm that served as the claims auditor from July 2005 through December 2006 had conflicting duties. Forty-one claims totaling $569,593 were deficient and certain claims were not approved by the claims auditor.

Lastly, controls over payroll and leave time were inadequate. The former business manager was overpaid by $16,986 due to the miscalculation of her final year salary and improper recording of leave accruals.

10


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial condition, claims processing and payroll and leave time.

District officials state that what the comptroller’s office found was correct, however, all of these findings have been addressed, as some of the problems listed were from four to five years ago. The District has previously and subsequently put in controls to address the problems concerning financial condition, claims processing and payroll and leave time, and will continue to do so in the future.

The District also concluded that in March 2008, a stipulation was signed providing for the repayment of $16,986.00 to the District from the overpayment made to the former business manager.

Merrick


Academy Charter School


  Financial Management Practices

2006-S-66

11th Judicial District

$14,339


adjustment

There was often no documentation on file to support either the amount paid or the business purpose of disbursements from a checking account that was supposed to expedite purchases of $500 or less.

It was determined that two of the disbursements were not made for valid school purposes, including one payment for $140, that enabled a member of Merrick’s board of trustees to attend a fundraising event for a State legislator. The other payment which totaled $160 allowed a Merrick staff member to attend an NAACP fundraising event.

Additionally, more than $1,800 in petty cash disbursements could not be accounted for, and there were weaknesses in the controls over procurement, payroll, and personal services, as well as equipment inventories.

Merrick uses a contractor to help manage and oversee its operations, and the contractor receives an annual management fee for its services. The fee for the 2004-2005 school year was calculated incorrectly by the contractor, and it should have been $890,480 rather than the $904,819 that was charged by the contractor, a difference of $14,339.

Merrick is governed by a board of trustees that is supposed to meet at least five times each school year, however the board only met twice during the 2004-2005 school year and just three times during the following school year.

17


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight, the annual independent audit, the school-based checking account, petty cash, procurement, management fee, controls and attendance and accrual records.

School officials generally agreed with the recommendations and have begun to initiate corrective action, if they have not already done so. Regarding the issue of recovering the $14,339 from the management overpayment, officials stated that the intent of all the parties to the “Second Charter School Management Agreement” is that the term commences with the 2005-2006 school year, and therefore, there was no overpayment.

Monroe-Woodbury Central School District  2008-2009 Tentative Budget

B8-8-2

9th Judicial District

The District’s significant revenue and expenditure projections in the proposed budget were reasonable; however, the 2008-2009 tentative budget includes the appropriation of $2.1 million of fund balance to help finance 2008-2009 operations. The District is required to appropriate the $2.1 million to ensure the remaining unreserved undesignated amount of fund balance remains below the statutory limit of 4 percent of the 2008-2009 budget. Using excess fund balance to finance ongoing costs can result in future budget gaps since this measure of funds may not be available in the event of future unexpected expenditures or revenue shortfall.

0


recommendation

There were no recommendations.

Montauk Union Free School District

Internal Controls Over Selected Financial Operations

2008M-13

10th Judicial District

The District does not have an effective claims audit process.The claims auditor has significant accounting duties and is directly supervised by the superintendent. She is therefore, not independent and her appointment as the claims auditor does not comply with SED regulations. As a result, the board has only limited assurance that the claims auditor will be able to resist management attempts to override internal controls.

Additionally, the internal controls over the financial system, cash disbursements, and payroll processing were not properly designed. The treasurer had administrative access and her duties were not segregated.

4


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding claims auditor and segregation of duties.

District officials have accepted the recommendations and have agreed to hire a part time assistant to the treasurer who will be responsible for record keeping, reconciling bank accounts, and making disbursements, thereby checking the work of the treasurer. Additionally, the treasurer no longer has full administrative access to the computerized financial system, and the superintendent is planning to reassign the duties of the claims auditor to a qualified employee.

New York


State Education Department  School District


Compliance with Rescue Act Provisions for Building Assessment and Planning

2007-S-24

A significant proportion of the 50 districts reviewed did not fully comply with the school building assessment and planning requirements of the RESCUE Act. For many districts, the non-compliance was material. Twelve districts had not fully complied with the requirement for the Building Condition Survey. Eleven districts had not prepared a Five-Year Capital Facilities Plan.

SED’s Office of Planning (OFP) needs to strengthen its efforts to monitor districts' compliance with the RESCUE Act. There were inconsistencies in databases used to administer the RESCUE program and monitor district compliance with RESCUE requirements. Two-hundred fifteen districts submitted Annual Visual Inspections (AVIs) for up to ten more buildings than were indicated on OFP’s building list. One-hundred thirty-two districts submitted AVIs for up to fourteen fewer buildings than were indicated on the building list. This is possibly a result of the districts providing incorrect building identification numbers and other data, when completing electronic AVI forms.

12


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures needed to improve SED’s oversight of the RESCUE program.

SED officials agreed with the recommendations pertaining to reviewing a sample of districts in order to monitor compliance with RESCUE-required documentation, centralizing all RESCUE documentation and reminding districts of their responsibility to prepare and submit proper RESCUE documentation. They also agreed with the recommendations to track attendance at RESCUE training sessions, establish procedures for monitoring the program, and to apply edits to the electronic AVI form. Lastly, officials agreed with the recommendations to notify districts when they do not submit RESCUE Act reports, to review AVI information for late dates, developing a management information system and to request a list of occupied buildings from the districts.

SED partially agreed with the recommendation to review the information reported on the AVIs and Building Condition Survey on a timely basis and to contact the districts when discrepancies arise.

Our World Neighbor Charter School  Financial Management Practices

2007-S-56

11th Judicial District

Four school employees did not have the required fingerprint background clearance from the Commissioner of Education. Additionally, 58 school employees began working at the School before receiving fingerprint and background clearance.

School officials did not always use competitive bidding practices to ensure that they received the best prices for the goods and services they purchased. In seven instances that involved $381,636 in vendor payments, there was no evidence of competitive bidding. One vendor was paid $135,142 for repair, security, and cleaning services; however there was no documentation that competitive bidding had been used to select that vendor.

Lastly, the School was disposing of computer equipment without keeping records of the discarded items. Without written records, the appropriateness of the method used to dispose of them is questionable.

9


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight, fingerprinting, the annual independent audit, cash disbursements, procurement, bank reconciliations and separation of duties.

School officials accepted the recommendations and have agreed to initiate corrective action, if they have not done so already. In response to the background check recommendation, the School stated that most staff members begin their work prior to the completion of the background check, but the board will implement a resolution for an emergency conditional clearance pending NYS Education Department final clearance in order for prospective employees to begin employment.

Patchogue-Medford Union Free School District

2008-2009 Tentative Budget

B7-8-3

10th Judicial District

The District’s tentative budget and the budgeted estimated revenues and appropriations appear reasonable.

0


recommendation

There were no recommendations.

Plainview-Old


Bethpage Central School District


  Internal Controls Over Gasoline Credit Accounts and Cellular Telephones

2008M-8

10th Judicial District

The District established adequate controls over gasoline credit account usage. The District has credit accounts with two gasoline vendors, from which 22 District employees are authorized to purchase gasoline. Each of the 22 employees has a personal identification number to procure gasoline. The District made payments totaling $77,175 for gasoline.

All 48 statements from the gasoline vendors were reviewed and there were no discrepancies. While the District established appropriate controls over gasoline account usage, the controls would be improved if employees were required to submit receipts.

The District had also been generally proactive in monitoring cellular telephone expenses and took appropriate actions to reduce cellular expenses.

0


recommendation

Randolph


Central School District

Internal Controls Over Selected Financial Operations

2008M-14

8th Judicial District

In the 2006-2007 fiscal year, the District spent $2.6 million on services provided by BOCES. Based on the material nature of these payments by the District to BOCES, the BOCES employee serving as the internal auditor is not independent in performing the District’s internal audit function. This arrangement is likely to put this individual, as a BOCES employee, in the position of evaluating significant District services or programs that are provided to the District by BOCES, the individual’s employer.

Additionally, the cafeteria manager and the head cook do not issue confirming receipts when cashiers remit the daily cash collections to them. They both have unrestricted access to the money in the registers and can change the entries made by the cashiers in the Point-of-Sale (POS) software. The oversight of cash collected from vending machines is inadequate, and cafeteria deposits are not always made on a timely basis.

One cashier has sole access to two vending machines and the cafeteria manager does not issue a confirming receipt when she receives the vending machine cash. In addition, she had access to two other machines and empties the cash from them weekly with no supervision or oversight. No District official reconciles the vending machine cash collected with the items sold.

7


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the internal audit function and cafeteria cash receipts.

District officials have addressed each finding pertaining to hiring an internal auditor, adopting written policies to govern cash receipts and remit daily cash collections. The District has also stated that the business manager is in contact with Erie BOCES and that all cafeteria employees will be present when vending machines are stocked or emptied.

St. Regis Falls Central School District

Internal Controls Over Selected Financial Activities

2008M-4

4th Judicial District

There were instances where the board either had not established essential internal controls or where the controls that had been established were not properly implemented and operating effectively.

The District also does not have adequate written policies and procedures providing guidance and internal controls related to cash transfer transactions. The District treasurer and deputy  treasurer can transfer funds between District bank accounts without any established approval process for monitoring these types of transactions.

There were also weaknesses in the controls over the maintenance of records for employee leave time. The board had not adopted written policies or procedures to provide guidance and internal controls over leave time accruals. Certain employee’s leave accruals did not conform to the benefits authorized in applicable employee contracts or collective bargaining agreements, resulting in the District having a recorded liability of $24,000 more than the actual liability.

5


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash transfers and leave time.

District officials accepted the recommendations regarding the cash transfer policy and the controls over district cash transfer transactions. The District has agreed to appoint a district treasurer who is employed by the District and discontinue the delegation of the cash transfers to the BOCES Shared Business Office.

The District also accepted the recommendations pertaining to leave time and stated that they will adopt a comprehensive leave accrual policy, as well as ensure that records are reviewed by an expert and properly authorized by the superintendent.

Salamanca


City School District

Internal Controls Over Selected Financial Operations

2007M-305

8th Judicial District

The information technology manager changed the computer records to decrease the amount of vacation days he had remaining. This change was not approved and administered through the normal leave time recording process. It appears that he changed the records in an attempt to record his use of leave time before our audit was completed instead of using informal compensatory time.

The District had no formal written procedures in place to provide district managers with direction on the types of documentation required to ensure that leave usage and the recording of leave are appropriate and accurate.

Several leave time entries were not properly recorded in the manually-prepared paper record and had no indication of supervisory approval. Additionally, there were leave time computer entries that were not supported by any original time sheet documentation.

Lastly, retirement incentive payments and leave time conversion credits all agreed with contract provisions.

3


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding leave time usage and selected employment and post-employment benefits.

District officials have agreed to budget for a third full-time technician in order to prohibit any one technician from having total access to the technology system. They have also agreed to create written procedures to be followed for leave time taken and days worked. A request form will also be mandatory for all employees to complete in order to use sick, personal and vacation days and supervisors will appropriately sign all time records from now on.

Schenectady


City School District

2008-2009 Tentative Budget

B6-8-4

3rd Judicial District

The significant revenue and expenditure projections in the proposed budget were reasonable; however, the District’s 2008-2009 proposed budget includes the appropriation of $3,600,000 of projected fund balance to help finance 2008-2009 operations.

1


recommendation

It is recommended that District officials closely monitor the use of fund balance to ensure that action is taken, if necessary, to identify other funding sources that can be used if fund balance is no longer available to fund District operations.

Sodus


Central School District

Internal Controls Over Selected Financial Activities

2007M-300

7th Judicial District

The District officials did not segregate the duties of the treasurer nor implement other compensating controls. The treasurer was responsible for performing the District’s financial duties with limited oversight. The business administrator reviews the bank reconciliations, but does not review the bank statements or cancelled checks.

The board also had not established adequate control policies and procedures to safeguard the District’s financial computer data. Access to financial software was not restricted and there are no policies in place to require that monitoring reports be provided and reviewed. There is also no disaster recovery plan.

4


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding segregation of duties and information technology.

The District officials stated that the majority of the corrective actions recommended had already been implemented prior to receipt of the audit report, but that they agree to amend additional concerns in the time frame identified.

Tuckahoe


Common School District

Internal Controls Over Financial Operations and Leave Accruals

2007M-291

10th Judicial District

The business official/treasurer and senior administrative assistant perform incompatible duties involving the key financial functions of authorizing transactions, custody of assets, processing payroll, and recordkeeping. There was also a lack of control over budgetary transfers and original voided checks were not maintained.

Additionally, leave accrual balances were not properly maintained, resulting in employees either receiving additional leave time accruals or using leave time that they were not eligible for.

6


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial operations and leave accruals.

District officials have stated that although the comptroller’s comments noted that duties were not properly segregated, that they felt checks and balances were adequate given the limited number of staff. Additionally, officials have agreed to implement the recommended controls, policies and procedures to further strengthen budget transfers, the voided check process, and leave accrual records.

Tully Central School District

Internal Controls Over Selected Financial Operations

2007M-282

5th Judicial District

The District paid $37,128 to a heavy equipment business owned by a board member. This constitutes a prohibited conflict of interest. Some of these payments were not made according to competitive bidding guidelines outlined by the District or the law. The District did not adequately bid for a $32,000 loader purchase from this vendor.

From July 1, 2005 to November 30, 2006, the board did not perform a comprehensive audit of claims and did not meet their fiduciary responsibility to audit claims. The board also failed to appoint a claims auditor for that purpose.

Additionally, the duties of the payroll clerk were not properly segregated.

Lastly, user rights in the District’s computerized financial system are not properly assigned to ensure adequate segregation of system abilities based on the user’s job duties. The treasurer also has the capability to perform tasks that are beyond her job description. There are also eight BOCES employees who have full administrative access to the system.

6


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding conflict of interest, claims processing, payroll, and the computerized financial system.

District officials generally disagreed with the recommendations pertaining to conducting transactions that reimbursed expenditures with a member of the board of education. The District states that it has already taken corrective action with regard to payroll and claims processing, as well as the computerized financial system. Overall, the District states that while there was some disagreement, the experience of the review provided needed direction for the District.

Valhalla Union Free School District

Internal Controls Over Selected Financial Operations

2007M-270

9th Judicial District

The Westchester Housing Enterprise for the Less Privileged (WestHELP) educational grant is a contract between the District and the Town of Greenburgh that provides funding for the development and implementation of enhanced educational programs for students within the District. The District did not maintain complete and accurate accounting records to facilitate the proper and timely monitoring of the WestHELP grant, and  as a result, $456,000 was not expended in accordance with the grant agreement, proposals or applicable laws.

The business administrator’s contract provided certain fringe benefits including a provision to allow him to receive life insurance valued at twice his annual salary. Rather than choosing to be reimbursed for a term policy, the business administrator elected to purchase a Flexible Premium Variable Universal Life policy that combined death benefit protection with the opportunity to direct the investment of net premium dollars into a broad portfolio of investment options. This selection provided him with benefits greater than provided for in his contract. The District overpaid for the business administrator’s life insurance premiums by $38,500.

District officials paid a retired transit police officer as a vendor, while also occasionally paying him as an employee through the normal payroll process. Instead of paying him as an employee, the District paid this individual as an independent contractor to prevent his income from exceeding the allowable income amounts under his retirement provisions.

The payroll clerk also performed all payroll functions, had the ability to sign checks electronically and could override the system without supervisory approval.

Additionally, the treasurer handled all phases of transactions, and although the treasurer submitted monthly reports to the board, no one provided oversight or reviewed the bank reconciliations.

Finally, the District did not implement an effective system of controls to safeguard computerized data, and there is not an information security policy. Employees are also not required to change passwords and there is no disaster recovery plan.

22


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight, the WestHELP educational grant, payroll, the treasurer’s office, and computerized data.

District officials agree with the recommendations regarding updating District policies to establish control and direction over grant record-keeping activities, fringe benefits, payroll, leave time records, the treasurer’s office and information security. They also agreed with the recommendations concerning contractual life insurance benefits, the role of the claims auditor, segregation of duties and leave accruals.

The District disagreed with the recommendations regarding board of education oversight of the WestHELP contract.

Wappingers


Central School District

Internal Controls Over Selected Financial Activities

2008M-1

9th Judicial District

Internal controls over cash receipts need to be improved. Press-numbered receipts are not always issued, and six deposits, totaling $174,441, included checks that were held for more than two weeks prior to deposit. Twelve checks, totaling $1,126, that related to an extra-classroom activity account were deposited, but did not clear the bank account. Accounting duties were also not properly segregated.

Additionally, the District has not established a disaster recovery plan.

5


recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash receipts and disbursements and computerized data.

District officials agreed with the recommendations regarding the formal disaster recovery plan and the handling of cash receipts. Officials have indicated that they will initiate corrective action.

The District disagreed with the comments made regarding the treasurer’s monthly reports and the District’s deposit requirements.