Skip to main content

Meeting of the Board of Regents | October 2008

Wednesday, October 1, 2008 - 8:00am

sed seal                                                                                                 


 


 

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:

October 1, 2008

 


STRATEGIC GOAL:

Goal 5

 


AUTHORIZATION(S):

 

 




Executive Summary



 

Issues for Discussion

 

              Four items are presented for discussion with the Members of the Subcommittee on Audits including:

 

  • Wyandanch Union Free School District – Interim Status Report on Actions
  • Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment II)
  • Audit Trend – Conflict of Interest (Attachment V)
  • Draft Topics – Office of Audit Services Two-Year Audit Plan 2008-2010 (Attachment VI)

 


Reason(s) for Consideration

 

              Update on Activities

 

Proposed Handling

 

              Discussion and Guidance

 

Procedural History

 

The information is provided to assist the Subcommittee in carrying out its oversight responsibilities related to audits of financial and reporting practices; performance audits or reviews; ethical conduct issues arising from audits; internal controls; and compliance with laws, regulations, and policies.


 


Background Information 



 

  • WyandanchUnion Free School District – Staff will provide an interim status report on actions taken by the Department in response to fiscal conditions at the Wyandanch Union Free School District.

 

2.           Completed Audits

              The Subcommittee is being presented with 15 audits this month.  The audits have been reviewed by the Department’s Internal Audit Workgroup.  Their report is attached.  (Attachment II)

 

              Audits are provided as follows:

 

Office of the State Comptroller

 

A Starting Place

Elmira City School District

Hadley-Luzerne Central School District

Highland Falls-Fort Montgomery Central School District

Mattituck-Cutchogue Union Free School District

North Tonawanda City School District

Oswego County Board of Cooperative Educational Services

Port Chester-Rye Union Free School District

Roosevelt Union Free School District

Sag Harbor Union Free School District

SED - Higher Education Opportunity Program

SED - Security Over Regents Examinations Follow-up Report

Unadilla Valley Central School District

Union-Endicott Central School District

Union Free School District of the Tarrytowns

 

  1. Audit Trend – Conflict of Interest – The results of the many audits of school districts conducted by the Office of the State Comptroller and others have been summarized and tracked over several months. One frequent audit finding includes conflict of interest of school board members. Department staff will describe the issue in more detail. (Attachment V)

 

  • Draft Topics - Office of Audit Services Two Year Audit Plan 2008-2010 – Staff will provide an overview of the Office of Audit Services draft audit plan.  The Office prepares a two-year audit plan to define its priorities and activities.  Input from the Regents and Deputy Commissioners and information from our risk assessment were used to establish audit areas.  The presentation of the draft plan will provide members with the opportunity to comment on the plan before it is finalized. (Attachment VI)

             





Recommendation

 

For item one (Wyandanch Interim Report) and item two (Completed Audits), no further action is recommended.  For items three (Audit Trend) and four (Audit Plan), the advice and guidance of the Members of the Subcommittee is sought.

 


Timetable for Implementation

 

              N/A

 

The following materials are attached:

  • Roadmap
  • Minutes of the September Meeting (Attachment I)
  • Review of Audits Presented – Department’s Internal Audit Workgroup (Attachment II)
  • Summary of Audit Findings (Attachment III)
  • Audit Report Abstracts (Attachment IV)
  • Audit Trend – Conflict of Interest (Attachment V)
  • Draft Topics – Office of Audit Services Two-Year Audit Plan 2008-2010 (Attachment VI)

 


 

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

 


Date:  October 2008


Time:  TBD


Location:  TBD


TOPIC


OUTCOME


WHO


MINUTES

Opening Remarks

 

Chair

3

Review Agenda/Minutes (Attachment I)

Approval

Conway

7

Wyandanch – Interim Status

Information

Szuberla

10

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 – Conflict of Interest (Attachment V)

Information

OAS Staff

10

Draft Topics  - Office of Audit Services Two-Year Audit Plan 2008-2010(Attachment VI)

Input

Conway

10





 

Your Subcommittee on Audits held its scheduled meeting on September 15, 2008.

 



Subcommittee Members in Attendance:

 

Geraldine D. Chapey, Chair

Regent Arnold Gardner

Regent Milton Cofield

Regent Joseph Bowman Jr.

 

 



Other Members of the Board of Regents in Attendance:

 

Regent Roger B. Tilles




 





Discussion Items



 

  • Regent Chapey welcomed the attendees and noted that we are at the beginning of the new academic year.  She also pointed out that the Accountability legislation has so far resulted in over 300 audits by the Office of the State Comptroller (OSC). The audits pointed out improvement opportunities that make school districts operate more efficiently.  She also mentioned the other reports that the Subcommittee has been involved in including the audit trends, flagged audits and possible policy changes.

 

  • The Director of Office of Audit Services (OAS) presented the agenda for the meeting including the report on the 62 audits, policy changes and another audit finding trend which is conflict of interest.  He also discussed the six audits identified by the Internal Audit Workgroup for follow-up and their specific findings.



 

  • TheraCare Preschool Services, Inc. – TheraCare charged non-reimbursable costs to the preschool program and it did not maintain the necessary documentation to support some expenses.  It misreported revenue and expenditure on the Consolidated Fiscal Report.  It has a questionable fiscal viability. It did not maintain fingerprint clearance records for all of its employees.

 

  • Campbell-Savona Central School District – The District had a general fund deficit of $3.2 million as of June 30, 2006.  It was approved for deficit financing.  The board of education did not have procedures to plan for long-term operational and capital needs.  It also did not monitor compliance with the procurement policy, issuing confirming purchase orders and allowing purchase orders generated even though appropriations were insufficient.

 

  • Jamestown City School District – There was no significant oversight by the treasurer over recording and reporting of past due school taxes. The District had a total of $206,485 in property taxes past due with more than half of the amount outstanding for more than a year.  There was no segregation in the treasurer’s duty of billing and collecting annual contribution from retirees for health insurance. 

 

  • Liverpool Central School District – A former superintendent was overpaid by a total of $26,275 during the 2000-01 to 2002-03 fiscal years for unused leave.  A board member received unauthorized health insurance coverage costing the District $44,283.  Weak controls over its student laptop program resulted in 32 missing laptops valued at $38,400.  The District donated the proceeds of the sale of 28 new laptops to a nonprofit organization.  The District turned over the BOCES aid it received to various community organizations that supported and provided funds to various student activities. 

 

  • Orange-Ulster BOCES – Purchasing controls need to be improved.  Tests of sample transactions show that the BOCES did not obtain quotes, RFPs were not used, there were no written contracts, and vendor payments were not reported to the IRS.

 

  • Wyandanch Union Free School District – This audit was conducted by OAS to follow-up on the Department of Education’s Office of Inspector General audit of Title I and II programs.  The District did not adequately substantiate expenditures charged to the programs.  The disallowance amounted to $252,221 in salary and $33,465 in non-salary expenditures.



 

  • Regent Tilles raised concerns about Wyandanch, including the firing of administrators and the increasing amount of deficit. He suggested that the Department do a 60-day monitoring of the Wyandanch situation but allow time for the new board of education to act.

 

  • Commissioner Mills stated that by law, school districts are required to keep its spending within budgetary appropriation and may not operate in a deficit and doing so is willful violation and could be grounds for removal.

 

  • Staff from the Office of Education - P-16 provided information on steps the Department has already taken as well as planned steps to address Wyandanch’s predicament.  At the next Wyandanch board meeting, a discussion of the budget deficit, deficit financing, transportation issues, and school lunch program deficit is anticipated.

 

  • It was agreed upon that Department staff will examine information related to Wyandanch’s actions and report back within 60 days on the status of the District. In addition, a 30-day status report at the next Subcommittee meeting will be provided.

 

  • Department staff also provided a list of three areas of proposed policy changes that the Regents could consider in order to enhance accountability in school districts and address the OSC audit finding trends.  The three areas were: changing the qualifications for key positions within school districts, enhancing required training for key positions in school districts, and increasing the number of school district officials subject to removal.  Department staff will continue to examine the appropriateness of the policy changes and report back to the Subcommittee.

 

  • Regent Cofield moved to accept the minutes of the June meeting and Regent Bowman seconded the motion.   



 

  • Completed audits presented this month:

 

Office of Audit Services

 

Beacon City School District

Theracare Preschool Services, Inc.

Wyandanch Union Free School District

 

Office of the State Comptroller

 

Avoca Central School District

Berkshire Union Free School District

Bethpage Union Free School District

Bolton Central School District

Briarcliff Manor Union Free School District

Byron-Bergen Central School District

Campbell-Savona Central School District

Cherry Valley-Springfield Central School District

Cohoes City School District

Croton-Harmon Union Free School District

Dolgeville Central School District

East Greenbush Central School District

East Quogue Union Free School District

Eastchester Union Free School District

Eastport-South Manor Central School District

Eldred Central School District

Elizabethtown-Lewis Central School District

Fredonia Central School District

Genesee Valley Central School District

Glens Falls City School District

Green Island Union Free School District

Greenville Central School District

Hartford Central School District

Herkimer Central School District

Herricks Union Free School District

Indian River Central School District

Jamestown City School District

Liverpool Central School District

Longwood Central School District

Lyncourt Union Free School District

Manchester-Shortsville Central School District

Marcellus Central School District

Margaretville Central School District

Millbrook Central School District

Multi-Agency Emergency Preparedness at Selected State Agencies

New Lebanon Central School District

New Rochelle City School District

North Colonie Central School District

North Rose-Wolcott Central School District

North Warren Central School District

Oneida City School District

Oppenheim-Ephratah Central School District

Orange-Ulster BOCES

Pittsford Central School District

Plattsburgh City School District

Poland Central School District

Port Jefferson Union Free School District

Procurement and Use of Green Cleaning Products (Chazy Central Rural SD,

Chenango Forks CSD, East Greenbush CSD, East Meadow UFSD, Erie I BOCES, Half Hollow Hills CSD, Patchogue Medford UFSD, Seneca Falls CSD, Sewanhaka CHS, Watertown City SD)  

Sandy Creek Central School District

Shoreham-Wading River Central School District

Springs Union Free School District

Town of Webb Union Free School District

Tuckahoe Union Free School District

Tuxedo Union Free School District

Valley Stream Central High School District

Westfield Academy and Central School District

Westhill Central School District

Whitesboro Central School District

Wyoming Central School District

  


Attachment II


 


Regents Subcommittee on Audits


October 2008


Review of Audits Presented


Department’s Internal Audit Workgroup



 



 

Newly Presented Audits

 

We reviewed 15 audits that are being presented to the Subcommittee this month.  The audits were of 11 school districts, 1 BOCES, 1 preschool special education service provider, and 2 were of Department functions. The audits were issued by the Office of the State Comptroller (OSC) and the findings were in the areas of procurement, information technology, payroll, cash, claims processing, financial reporting, segregation of duties, extraclassroom activity fund, budgeting, conflict of interest, fingerprinting and other. The audits of Department functions were related to the Higher Education Opportunity Program and a follow-up on Regents Examination Security.

 

The Department has issued letters to the auditees, reminding them of the requirement to submit corrective action plans to the Department and OSC within 90 days of their receipt of the audit report.

 

The Department’s Internal Audit Workgroup identified five school district audits, one BOCES audit, and two Department audits for further review and follow-up.

 

  • ElmiraCity School District

 


Summary of Audit

 

Unauthorized and inappropriate payments for unused leave were made to a former assistant superintendent amounting to $35,312.  Six employees who transferred to the Greater Southern Tier BOCES Central Business Office were paid for unused and accrued vacation time, and allowed to carry over vacation days from one fiscal year to the next without contract provisions.  These transfers necessitated a BOCES contract change increasing it by $56,000 which the superintendent approved without formal board approval, to cover for, among others, the vacation time cost that the District agreed to fund for transferred employees.  Three former school administrators provided educational consulting services without the benefit of a written contract for one of the two years. 

 


Follow-up Action

 

Upon Elmira’s submission of the corrective action plan for this audit, Office of Audit Services’ (OAS) staff will review to ensure all findings have been addressed.

 






  • Highland Falls-Fort Montgomery Central School District –

 


Summary of Audit

 

The District did not obtain fingerprint-supported background checks for 27 of 58 employees and four contractors who were in direct contact with students.

 


Follow-up Action

 

The response to the draft audit report indicated that the District has implemented procedures to ensure all employees and contractors having direct contact with students undergo criminal background checks and fingerprinting as prescribed by law. In addition, the Department’s Office of School Personnel Review and Accountability (OSPRA) will provide annual guidance to remind school employers about their obligations under the SAVE law and to inform interested parties about new technology advancements for the processing and management of fingerprint applications and information. OSPRA staff will continue to provide technical assistance.

 

  • Roosevelt Union Free School District

 


Summary of Audit

 

The District did not receive a $4 million cash advance on future State aid because District officials failed to prepare and file a five-year financial plan with the Commissioner. (Subsequent to the issuance of the audit report, Roosevelt did file the five-year plan and received the $4 million cash advance.)  The District has potential operating surplus for year ending June 30, 2008 of over $21 million which may lead to over $13 million of fund balance at the end of the 2007-08 fiscal year.  This may decrease by $766,000 if District officials subsidize the school lunch fund operations and transfer funds to eliminate the 2006-07 school lunch fund deficit of $573,000 and the 2007-08 operating deficit of $192,000.

 


Follow-up Action

 

Upon Roosevelt’s submission of the corrective action plan for this audit, OAS staff will review to ensure all findings have been addressed.

 

  • Unadilla Valley Central School District, Union-Endicott Central School District and Elmira City School District (also mentioned above)

 


Summary of Audits

 

These districts appointed their respective BOCES as claims auditor.  Each BOCES provides significant services to the districts.

 

 

 

 

 


Follow-up Action

 

A Department workgroup has been convened to study the OSC audit findings related to Central Business Office functions.

 

  • OswegoCounty BOCES

 


Summary of Audit

 

Policies and procedures have not been established to ensure adequate segregation of duties and oversight of handling and recording cash receipts.  There were no effective internal checks on the coordinator of the Art Department who was responsible for the collection of about $73,000 in revenue for 2006-07.  There was also discrepancy in the amount of revenue recorded by the Adult Education Department ($710,000) and by the Business Office ($686,000) which had not been reconciled.

 


Follow-up Action

 

Staff from the Office of Education - P-16 Education and OAS will meet with the district superintendent to discuss this issue.

 


  • SED - Higher Education Opportunity Program -

 


Summary of Audit

 

The primary objective of the audit was to determine whether Higher Education Opportunity Program (HEOP) funds were used for the prescribed purpose at the four schools selected for audit.  The audit found all four schools appeared to be using HEOP funds solely for their prescribed purpose.  However, one of the four schools audited (Long Island University-Brooklyn) had an unresolved discrepancy between the amount of total expenditures reported to the Department at year-end and the amount shown in the school’s records.  Detailed HEOP records are not retained by the school as required by the Department.  The audit also aimed to determine whether the four schools accurately reported the number of students receiving HEOP services and aid.  It concluded that there was minimal risk the four schools were inaccurately reporting HEOP enrollments to the Department.

 


Follow-up Action

 

As part of the internal control risk analysis for HEOP, program Department staff will be conducting a site visit at LIU-Brooklyn during this 2008-09 program year.  A focus during the visit will be to discuss the audit recommendations.  LIU is 1 of 3-4 site visits planned for this year at postsecondary institutions that offer HEOP.

 

 

 

 


  • SED - Security Over Regents Examinations Follow-up Report -

 

        Summary of Audit

 

The original report issued on June 5, 2007, identified a number of schools not in compliance with SED guidance.  It also indicated that there were increased breaches in security at certain locations over the examination such as schools storing materials in unauthorized locations and/or opening sealed packages before the allowed time.  This is a follow-up report to assess the extent of implementation of the initial recommendations.  The result is all recom-mendations have been implemented by the Department.

 


Follow-up Action

 

No action necessary.

 


 

Audit

Procurement

Claims Processing

Payroll

Cash

Financial Reporting

Information Technology

Extraclassroom Activity Fund

Segregation of Duties

Budgeting

Conflict of Interest

Fingerprinting

Other


 


Office of the State Comptroller

* A Starting Place (footnote 1)

 

 

 

 

 

 

 

 

 

 

* Elmira City School District (footnote 2)

 

 

 

 

 

 

 

 

Hadley-Luzerne Central School District

 

 

 

 

 

 

 

 

 

 

Highland Falls-Fort Montgomery Central School District

 

 

 

 

 

 

 

 

Mattituck-Cutchogue Union Free School District

 

 

 

 

 

 

 

 

North Tonawanda City School District

 

 

 

 

 

 

 

 

 

 

Oswego County BOCES

 

 

 

 

 

 

 

 

 

 

 

Port Chester-Rye Union Free School District

 

 

 

 

 

 

 

 

 

 

Roosevelt Union Free School District

 

 

 

 

 

 

 

 

 

 

 

Sag Harbor Union Free School District

 

 

 

 

 

 

 

 

*SED - Higher Education Opportunity Program (Report 2007-S-106) (footnote 3)

 

 

 

 

 

 

 

 

 

 

*SED - Security Over Regents Examinations Follow-up Report (Report 2008-F-13) (footnote 4)

 

 

 

 

 

 

 

 

 

 

 

Unadilla Valley Central School District

 

 

 

 

 

 

 

 

 

Union-Endicott Central School District

 

 

 

 

 

 

 

 

 

 

Union Free School District of the Tarrytowns

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


October 2008 Total


6


3


5


4


3


6


1


2


1


1


1


4

 

*Other:

1         Cost and Enrollment Data

2         Control Environment

3         Use of Higher Education Opportunity Program Funds and Enrollment

4         Regents Examinations







 


Summary of Current and Prior Audit Findings

 

 

May 2007 - April 2008

May 2008

June 2008

September 2008

October 2008

Running Total

Procurement

97

9

2

35

6

149

Capital Assets

18

0

0

1

0

19

Claims Processing

108

9

3

16

3

139

Payroll

107

13

2

24

5

151

Cash

80

13

3

21

4

121

Financial Reporting

64

5

1

15

3

88

Information Technology

100

8

1

25

6

140

Capital Construction

5

0

0

0

0

5

Extraclassroom Activity Fund

7

0

0

6

1

14

Segregation of Duties

47

4

3

6

2

62

Budgeting

9

1

6

1

1

18

Conflict of Interest

10

2

0

4

1

17

Fingerprinting

0

5

1

0

1

7

Other

7

2

5

19

4

37

Total

659

71

27

173

37

967

 


 







Definitions of Categories


 

Procurement – includes findings related to lack of a contract, failure to competitively bid, failure to use purchase orders, lack of segregation of duties, no approval of the purchase and a lack of documentation.

 

Capital Assets – includes failure to have a manager responsible, lack of policy, and inappropriate disposal.

 

Claims Processing – includes claims being paid without adequate documentation, failure to audit the claim, an untrained claims auditor, and a claims auditor that lacks independence.

 

Payroll – includes a lack of segregation of duties in the payroll process, no policy and procedures and inappropriate payments to district administrators including leave accruals and health benefits.

 

Cash – includes poor control of cash, failure to prepare bank reconciliations, and weaknesses in the treasurer’s duties.

 

Financial Reporting – includes inaccurate accounting statements, such as, an overstated fund balance, fund balance exceeding the legal limit, and general fund transfers without voter approval.

 

Information Technology – includes lack of a disaster recovery plan, failure to back up information, inappropriate or undocumented user rights, inappropriate or missing password protection, and no policy and procedures.

 

Capital Construction – includes a lack of detailed accounting records related to a capital project, undocumented expenses, inappropriate and unapproved change orders.

 

Extraclassroom Activity Fund – includes poor accounting over funds and no documentation of expenses.

 

Segregation of Duties – includes weakness in control caused by individuals having responsibility for incompatible functions.

 

Budgeting – includes budget reviews required for school districts that have received approval for deficit financing, poor revenue projections and use of fund balance.

 

Conflict of Interest – includes personal conflicts of board members, district officials, and district employees where they have an interest in a contract, where they have the power, or may appoint someone who has the power to negotiate, authorize, approve, prepare, and make payment or audit bills or claims of the contract.

 

Fingerprinting – includes failure to fully comply with fingerprinting requirements.

 

 

 



Office of the State Comptroller


Audit


Major Finding(s)


Recommendation/Response


A Starting Place  Compliance with the Reimbursable Cost Manual For the Fiscal Year Ended June 30, 2006


2008-S-68


9th Judicial District


 


 

The audit was conducted to determine whether cost and enrollment data reported to the State Education Department (Department) by A Starting Place on the consolidated fiscal report (CFR) for the fiscal year ended June 30, 2006 was properly supported and eligible per the Department’s reimbursable Cost Manual.

 

For the year ended June 30, 2006, there was a net disallowance of $21,555 from the CFR submitted for the three preschool special education programs reviewed. The adjustments included disallowances totaling $28,230 for certain other-than-personal service costs that were not adequately documented. Additionally, the School under-claimed certain administrative personal service costs totaling $6,675. The net reduction in total allowable costs is $21,555.

 

The School had effective internal controls over its financial management practices, however the School’s board of directors was not independent, and new members who had no affiliation with the School, were needed to provide an appropriate level of oversight. The School also needs improved procedures for maintaining time and attendance records for certain administrative staff.

 


6 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cost and enrollment reporting, direct care OTPS costs, non-direct payroll costs, student FTE enrollment, board governance, and time and attendance records.

 


Department officials agreed with the recommendations pertaining to making the appropriate adjustments to the costs reported on the CFR, and to follow-up with A Starting Place to determine management has taken the appropriate recommended actions. The Department has indicated that it will take the appropriate steps to address these recommendations.


 


School officials also agreed with the recommendations and indicated the steps they have taken and plan to take to implement them. They will review purchases to ensure they are eligible and properly documented. Officials will ensure that supervisors verify the completion of employee time sheets. The School will also maintain an independent board of directors.

 


The Rate Setting Unit will use the results of the audit to establish audited tuition rates.


Elmira


City School District


Internal Controls Over Selected Financial Activities


2008M-43


6th Judicial District


 


(Contract for Excellence District)


 

There were unauthorized and inappropriate payments for unused leave benefits to a former District administrator. There was $35,312 worth of inappropriate payments for 68 and one-half vacation days made to the former administrator. Additionally, all six employees who transferred to the Greater Southern Tier BOCES Central Business Office were paid for unused and accrued vacation time, despite their contracts failing to specify that this was allowed. The payments amounted to $9,272. The six employees were also allowed to carry over 45 and one-half vacation days from the 2004-05 fiscal year to 2005-06, which amounts to approximately $8,700, if converted to cash value, and this was also supplied without contract provisions. Further, the superintendent also approved a BOCES contract change for $56,000 without formal board approval.

 

Additionally, three former school administrators provided educational consulting to the summer school program, the Comprehensive Early Childhood program and the School Readiness Project for the District during the 2005-06 and 2006-07 fiscal years. In 2005-06, the work was performed without the benefit of a written contract. The board revised the purchasing policy, and procedures for procurement were revised to include the requirement that the purchasing manager shall send a copy of the contract to the District’s claims auditor. Guidelines for procurement of professional services were also revised, creating criteria for contracts and changing the limit for board approval of professional contracts to $10,000.

 

The board appointed the senior payroll account clerk as the District’s claims auditor from July 1, 2005 through April 2006, as opposed to appointing a claims auditor in accordance with State Education Department standards. After moving business staff to the central business office, the board appointed a BOCES employee who served as treasurer of another school district to serve as the District’s claims auditor.


10 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding control environment, payroll, claims auditor, and professional service contracts.

 


District officials generally agreed with the recommendations pertaining to the control environment. Specifically, the District has implemented corrective action to amend separation payments made to the former superintendent of management services and six employees; the BOCES contract change without board approval; and the appointment of a claims auditor in accordance with regulations.

 


Officials will also enter into possible litigation to recover the $35,312 in overpayments made to the former assistant superintendent, and the business office will continue to monitor oversight procedures to ensure employees are being properly paid. The District has also agreed to address the recommendations pertaining to the recovery of $9,272 in separation payments.


 


Hadley-Luzerne


Central School District


Internal Controls Over Extra-Classroom Activity Funds and Payroll


2008M-113


4th Judicial District


 


 

The board has established policies to govern the operations of the activity fund and has appointed a central treasurer to be responsible for receipts and disbursements. However, the board appointed faculty advisors to oversee only 10 of the 46 activities. The board also did not appoint a faculty auditor to oversee the management of the activity fund. As a result, neither the board nor District officials could be assured that activity fund monies were being accounted for properly in compliance with the regulations, and there was an increased risk that errors or irregularities could have occurred and gone undetected.

 

Financial records for eight extraclassroom activity accounts were reviewed, and it was found that advisors did not ensure that any records were maintained for six of the eight accounts. The records maintained for the remaining two accounts were inadequate.

 

Thirty-six bank deposit receipts, totaling $16,968, were reviewed, and it was found that the activity fund’s receipt documentation did not match the receipts posted to the central treasurer’s ledger. Eight posted receipts (totaling $4,343) were also missing from the extraclassroom activity deposit documentation, which were later accounted for. The advisor of the activity fund also did not maintain records of bank deposit receipts.

 

Twenty-one out of forty payments reviewed (totaling $40,502) lacked the student treasurer’s signature to indicate that it was an approved activity purchase. Additionally, 44 out of 62 deposits did not have the required signature of the student treasurer on deposit documentation.

 

The District also had sufficiently segregated the duties over the payroll process. Payrolls were tested and no significant expectations were found.


6 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding internal controls over extraclassroom activity funds and payroll.

 


District officials generally agreed with the recommendations. They indicated they have enhanced controls by making the treasurer a full-time position and as such, major risks, such as tax receipts, payroll and disbursement procedures, were strengthened. Mandatory training for all advisors will be provided, and clubs will not operate without board appointed advisors. A faculty auditor has also been appointed to oversee activity operations.


 


Highland


Falls-Fort Montgomery Central School District


Internal Controls Over Selected Financial Activities


2008M-91


9th Judicial District


 


 

There were various internal control weaknesses in the areas of purchasing, payroll, and information technology. Such weaknesses included a lack of proper policies and procedures, and poor documentation of activities.

 

Further, the District did not obtain fingerprint-supported background checks for 27 of 58 District employees, or four contractors who are in direct contact with students. Also, District officials did not obtain Employment Eligibility Verification Forms, as required by federal law, for nine of the 16 employees reviewed.

 

District officials hired 13 summer employees without any board authorization and three others were hired prior to board approval.  There was also a lack of segregation of duties in processing payrolls.

 

There were incompatible duties in purchasing, as the purchasing agent was also responsible for processing cash disbursements. District officials also did not seek competition when procuring legal, appraisal, architectural, telephone, and boiler repair services, totaling $161,361.

 

Finally, the business official has not developed or implemented effective access control to the financial software. The user rights of five former employees were not terminated in a timely manner when the employees left the District service.


18 recommendations


 

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

 


District officials generally agreed with the recommendations pertaining to criminal background checks and fingerprinting, the adequate segregation of duties in payroll, temporary summer staff appointments, segregation of duties in purchasing, written contracts with professional service providers, and computer user access rights.

 


The District will consider how to best revise and clarify policies and procedures concerning the recommendations, and will implement corrective action shortly.


 


Mattituck-Cutchogue Union Free School District


Internal Controls Over Selected Financial Activities


2008M-102


10th Judicial District


 


 

The board has not adopted the necessary policy guidance and at other times District officials had not properly implemented the board’s policies. The treasurer and deputy treasurer did not have separate signature disks and could place each other’s signatures on District checks. The accounts payable clerk did not enter 14 cash receipts totaling approximately $8.7 million into the daily cash receipt log, as required, and did not compare the log to bank deposits. Sixteen wire transfers totaling $6.1 million were initiated and executed without proper authorization or independent review.

 

The payroll clerk was able to change employee data, process payroll, and print signed paychecks without independent review. The business manager was also the financial system administrator, treasurer, and purchasing agent.

 

The District also did not adopt comprehensive IT policies and procedures to ensure the security of the District’s financial system and data.

 


10 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash receipts and disbursements, segregation of duties in the business office, and information technology.

 


District officials have indicated that they corrected the signature disk error with the auditors as witnesses, and the missing prior written authorization is also now being done on each wire transfer. Comprehensive IT controls and disaster recovery were not in place during the audit, but are in the process of being put in place during this fiscal year.


North Tonawanda


City School District


Internal Controls Over Selected Financial Operations


2008M-95


8th Judicial District


 


 

Total cafeteria collections as reported monthly to the District by its contracted food service vendor exceeded deposits actually made in the District’s bank account by $15,690 in the 2006-07 fiscal year, and by $21,663 in the first four months of the 2007-08 fiscal year. Additionally, there was also an overpayment of $1,453 for vendor services.

 

Further, District computers did not prompt users for proper identification to log onto the network and access the Internet and information stored on computers’ local hard drives. District officials also did not consistently install virus protection software, and some installed unauthorized software on District computers.

 


6 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding food service cash receipts and disbursements and District computers.

 


District officials generally agreed with the recommendations pertaining to the food and service overpayment, the client sales summary, monthly invoices, computer software packages, and password protection. The board will be developing a corrective action plan to address each recommendation.


Oswego


County Board of Cooperative Educational Services  Internal Controls Over Cash Receipts and Disbursements


2008M-141


5th Judicial District


 


 

BOCES officials have not established policies and procedures to ensure that there is an adequate segregation of duties for and oversight of the handling and recording of cash receipts. Cash collections were not monitored adequately. Even though the Art Department collected almost $73,000 of revenue during 2006-07, there were no effective internal checks on the coordinator. The Adult Education Department charges adult students tuition to enroll in BOCES programs. In 2006-07, the Adult Education Department brought in over $710,000 per the records at the business office. However, the Department record showed revenue of only about $686,000 and that database had not been reconciled to ensure that all revenue was recorded and controlled. As a result, there is an increased risk that errors might occur.

 

Additionally, there were deficiencies in the treasurer’s oversight of the check-signing function for computerized checks.

 


6 recommendations


 

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

 


BOCES officials generally agreed with the recommendations pertaining to oversight guidance to BOCES management, the design of the business office and cash receipt functions, reliable records for the cash receipt process, system of internal controls over cash disbursement functions, the treasurer’s electronic signature, and the proper authorization of check disbursements. The BOCES has established expected implementation plan of action dates for each recommendation.


Port Chester-Rye Union Free School District Internal Controls Over Procurement and Computerized Data


2008M-128


9th Judicial District


 


(Contract for Excellence District)


 

The District made purchases from three vendors totaling $110,450, and paid five vendors $206,100 for services, all without competitive bidding or quotes. The District also paid $31,138 for a construction change order, without obtaining proper authorization. This is a total of $347,688 in goods and services procured without competition.

 

District employees are also not required to periodically change their passwords that permit access to some District computer applications.

 

Finally, District officials have not established adequate physical access controls to protect a server and its applications.

 


5 recommendations


 

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

 


District officials generally agreed with the recommendations pertaining to soliciting bids for purchase orders, compliance with the RFP policy, monitoring construction contracts, user account access controls, and the security of servers. The District has indicated that they will initiate corrective action shortly, if they have not already done so.


Roosevelt


Union Free School District  Tentative Budget Plan for 2007-2008


2008M-179


10th Judicial District


 


(Fiscally Stressed)


 

The District’s general fund revenues and expenditures were reviewed, and it was determined that the District has a potential operating surplus for the year ending June 30, 2008, of over $21 million. If this surplus is realized, the District will end the 2007-08 fiscal year with a projected accumulated fund balance of over $13 million. The District’s general fund balance of $13 million may decrease by $766,000 at June 30, 2008 if District officials act to subsidize the school lunch fund operations with a general inter-fund transfer to eliminate the school lunch fund’s accumulated 2006-07 deficit of $573,000, and to subsidize the 2007-08 operating deficit of $192,000.

 

The District did not receive a $4 million cash advance on future State aid to which it was entitled because District officials failed to prepare and file a five-year financial plan with the commissioner of education as required.  (Subsequent to the audit, the District did file the five-year plan and the $4 million was released.)

 

Revenues should generally equal expenditures in the Special Aid fund. There was approximately $6 million dollars of grant money available during the 2007-08 fiscal year, of which $4.5 million was expended as of June 30, 2008. The difference would be carried forward into the next year.


7 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the segregation of funds within the general fund balance, expenditures for BOCES services, and the preparation of the five-year financial plan with the commissioner of education.

 


The District has indicated that they have already segregated the $6 million received from New York State, and also that they will soon develop future plans for BOCES purchasing and will track expenses closely. The District has also indicated that they are currently finalizing the five-year financial plan report, and will distribute it on August 22, 2008.


Sag Harbor Union Free School District


Internal Controls Over Selected Financial Operations


2008M-71


10th Judicial District


 


 

District officials hired a vendor to provide certain educational services to the District. The company, Human Growth and Development Network, Inc. (HGDN) is partially owned and operated by a District retiree who was rehired by the District in January 2007 to be the interim assistant principal at the middle school.  He remained employed by the District until June 30, 2007.  He did not properly disclose his interest in contracts with the District.

 

The District’s business official/purchasing agent had administrative access rights to the computerized financial system and the board did not solicit requests for proposals (RFP) for independent auditing services, and the services were not part of a multi-year contract.

 


3 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding disclosure of interest in contracts, computerized financial system, and procurement of independent audit services.

 


District officials agreed that when the board engaged the services of a former Sag Harbor principal to act as the interim principal for the middle school, the board should have better disclosed the interest. They also agreed with the recommendation pertaining to the business official’s access to the complete districtwide database and the problem was already being addressed at the time of the audit. Finally, the District implemented the RFP recommendation when the district issued an RFP for external auditing services in April 2008 for the 2007-08 audit. District officials will be providing a corrective action plan to address the recommendations in the near future.


SED - Higher Education Opportunity Program


2007-S-106


 


 

The Higher Education Opportunity Program (HEOP) provides tutoring, counseling, tuition-support and financial assistance to economically and academically disadvantaged students attending private colleges and universities in New York State. From 2005-06, 5,376 students were enrolled in HEOP programs at 55 participating schools, and $21.7 million in HEOP funding was paid to the schools.

 

New York University, the Brooklyn Campus of Long Island University, Syracuse University, and the College of St. Rose in Albany were all reviewed to determine whether the schools were appropriately using their HEOP funds. Year-end progress reports were reviewed for the 2005-06 and 2006-07 academic years for these four participating schools, as well as samples of non-personal service expenditures, and a sample of personal service expenditures at each school. Each school was also visited to review documentation supporting the sampled expenditures.

 

All four schools were using the HEOP funds for the correct purposes. However, at Long Island University-Brooklyn, the total expenditures reported by the school at the end of the year did not always agree with the total amounts shown in the school’s records. The School had not retained its detailed HEOP expenditure records, therefore, those discrepancies were unable to be solved.

 

SED is required by law to publish an annual report summarizing HEOP activities at participating schools.  The Department is two years behind in its completion of these annual reports.


4 recommendations


 

The report’s recommendations focused primarily on the use of HEOP funds, allowable expenditures, accuracy of reported expenditures, accuracy of reported HEOP enrollments and their eligibility, and the Department’s annual reporting requirement.

 

The Department agreed with the recommendations pertaining to following up with LIU-Brooklyn to verify compliance with recordkeeping guidelines and using a risk-based approach during site visits to schools to examine the schools’ accounting records and ensuring compliance with HEOP guidelines. The Department also agreed to publish the annual HEOP report on time in the future.


 


SED -  Security Over Regents Examinations Follow-Up Report


2008-F-13


 

The initial report to test the security of the Regents examinations was issued on June 5, 2007, and it was conducted to determined whether schools complied with applicable Department requirements to maintain security over the examinations from the time the materials were received by the schools until the day the examinations were given. The report identified a number of schools that were not in compliance with the applicable SED guidance.

 

Some schools stored examination materials in unauthorized locations and/or opened sealed packages of examination materials before the allowed time. Because of these and other actions, it was concluded that the risk of breaches to examination security was increased at certain locations. The objective of the follow-up report was to assess the extent of implementation, as of June 27, 2008, of the recommendations included in the initial report.

 


9 recommendations


 

All recommendations from the initial report have been implemented, including providing security awareness training for schools, determining whether schools using unapproved safes should be allowed to retain their storage privileges, reminding school officials that sealed materials may not be opened until the allowed time and that exams needed for review only should not be requested through the regular ordering process. The Department was also able to effectively remind school officials of the inventory requirements for sealed exam materials and request that schools notify the Department when they received unordered or excess materials. The Department also developed a formal program for conducting regular site visits to schools to verify compliance with requirements, and they have periodically surveyed schools that have not recently been inspected to determine whether their storage facilities still meet Department requirements.


Unadilla


Valley Central School District


  Financial Operations


2008M-133


6th Judicial District


 


(Contract for Excellence District)


 

The District’s policy and procedural requirements were not followed, and as a result, credit cards were used by unauthorized users, and the District incurred late fees and finance charges. Further, fuel purchases were not supported with proper documentation.

 

The treasurer also did not supervise the use of his facsimile signature, and the treasurer is not informed when his signature is applied to accounts payable checks.

 

The board did not appoint an independent claims auditor in accordance with Department regulations, and instead the board appointed the Delaware Chenango Madison Otsego (DCMO) BOCES to serve as the District’s claims auditor. This arrangement may not be appropriate because the DCMO BOCES provides significant services to the District.


7 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding credit and fuel card usage, the treasurer’s signature, and the appointment of the claims auditor.

 


District officials generally agreed with the recommendations and they have agreed to establish corrective action as soon as possible.


 


Union-Endicott


Central School District


Claims Auditor and Internal Controls Over Cash from Vending Machine Sales


2008M-123


6th Judicial District


 


 

An individual was appointed as the District’s claims auditor, whose independence could be questionable. Cash assets from vending machine sales were also exposed to risk of theft.

 

The District contracted with Broome-Tioga BOCES for management support services for a total of $620,000 of which $507,000 was for central business office services. These services included several business related services, one of which was claims auditing. This arrangement is not appropriate because the District paid the BOCES approximately $12.6 million for various services including the claims audit function.

 

Further, District officials did not know how to access vending machine sales data and, therefore, could not reconcile the amount of cash they collected and deposited to vending machine sales.

 


2 recommendations


 

The report’s recommendations focused primarily on strengthening policies and procedures regarding the claims auditor, and cash from vending machine sales.

 


District officials generally agreed with the recommendation pertaining to the assurance that the appointment of the District’s claims auditor is in accordance with Department regulations. The District also agreed with the recommendation that the director should develop a process for reconciling vending machine sales to cash collected to ensure all cash from vending machine sales is accounted for properly. The District has indicated that they have already moved forward with new policies and procedures to amend all findings.


Union Free School District of the Tarrytowns


Internal Controls Over Selected Financial Operations


2008M-117


9th Judicial District


 


(Contract for Excellence District)


 

The District has not established adequate internal controls over purchasing. The District did not always follow General Municipal Law, or the District’s adopted purchasing policy when purchasing goods and services. The District did not request bids for eleven purchases and public work contracts, totaling $435,820, and the District also did not request competitive proposals to retain the services of nine professional service providers totaling $811,793. The District also did not obtain quotes to ensure they reviewed the best prices for purchases totaling $88,697.

 

The treasurer who is also the payroll clerk, performed most payroll functions and most cash management functions with insufficient oversight.

 

The District also did not account for four laptops on their inventory listing. One laptop was accounted for, but three remained missing at the end of the audit.

 

Internal controls over the District’s information technology were also insufficient. Most importantly, several users of the District’s financial software had access rights that exceeded the requirements of their job duties.


16 recommendations


 

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

 


District officials generally agreed with the recommendations pertaining to competitive bidding, the segregation of duties for payroll, cash management, the missing computer equipment, and the District’s financial software. Officials have indicated that the appropriate policies and procedures have been implemented or will be implemented shortly, in order to amend all concerns.


 

 


Attachment V

 


Regents Subcommittee on Audits


OSC Audit Trend – Conflict of Interest


October 2008


 



Background

 

School districts and BOCES purchase thousands of products and services each year from many vendors and contractors. A district’s policy should ensure fairness in the procurement of goods and services. Conflict of interest transactions occur when an officer or employee is on both sides of a transaction. It exists when some financial or other material benefit comes to the employee from a business or professional transaction with the district or BOCES. 

 



Common Findings

 

The audits conducted by the Office of the State Comptroller (OSC) have identified findings related to conflict of interest of board members and district employees. In response to the findings, the audits have recommended:

 

  • District officials should take corrective action to eliminate the conflict of interest that exists.

 

  • The board should review the conflicts of interest provisions of the General Municipal Law (GML) and its Code of Ethics and establish procedures to help District officials identify and avoid potential conflicts of interest.

 

  • The board should establish controls to ensure that District officers and employees are aware of the statutory requirements pertaining to interests in contracts with the District.

 

  • The board should establish controls to ensure that the District does not enter into any contracts in which an officer or employee has a prohibited interest.

 

  • The board should review and revise its Code of Ethics to address situations where District officials and employees have interests in contracts with the District.

 

  • The board should ensure that every District officer or employee who has an interest in any contract with the District discloses their interest in writing to the board.

 

  • The board should ensure that all purchases are made according to the requirements of GML and the District’s purchasing policy.

 

  • The board should require the District clerk/secretary, and any other District official/employee, to disclose interests in contracts with the District as required by law.

 

Audit findings related to conflict of interest are found in four of the audits being presented this month. Since May 2007, 17 of the 392 OSC audits presented to the Subcommittee contained findings related to conflict of interest.

 



Criteria



 

Conflict of interest is governed by Article 18 of GML. School districts and BOCES are subject to the provisions of the law. Section 801 of GML prohibits conflict of interest by stating no municipal officer or employee shall have an interest in any contract with the municipality of which he is an officer or employee and has the power or duty to:

 

  • Negotiate, prepare, authorize or approve the contract or authorize or approve payment,
  • Audit bills of claims under the contract, or
  • Appoint an officer or employee who has the power or duties set forth above.

 

In addition, the law prohibits the chief fiscal officer, treasurer or his deputy or employee from having an interest in a bank designated as depository, paying agent, registration agent or for investment of funds of the municipality.

 

Section 803 of GML requires an officer or employee to publicly disclose the nature and extent of any conflict of interest in writing to his/her immediate supervisor and to the governing body as soon as the individual has knowledge of the actual or potential interest. The disclosure must be made part of the official record of the proceedings.

 



Guidance and Training



 

The Department’s Reference Manual for Audits of School Districts reminds auditors of the requirement for districts to have a Code of Ethics for officers and employees. In addition, the Department provides training in claims auditing and purchasing, which discusses conflict of interest situations and legal requirements.



 



Recommendation

 

The most effective way to enhance compliance with conflict of interest situations is through expanded training. The following possible actions have been considered to address the findings in the area of conflict of interest:

 

  1. expand training and outreach
  2. expand training requirements to additional school officials






Attachment VI

 


Possible Topics – Office of Audit Services Two-Year Audit Plan 2008-2010


 


 


Audits of Schools and Districts

  • Accuracy and reliability of district data used to generate State Aid
  • Accuracy and reliability of other data including student assessment, graduation, dropout and violent and disruptive incident data
  • New York City use of IDEA funds

 


Internal Audits of Department Operations

  • Department procurement practices including State operated schools
  • The Department’s process to identify risk, controls and corrective actions
  • The Department’s system for sub recipient monitoring
  • The 211 waiver process
  • Archives regional offices
  • Bundy Aid payments
  • Article 129A certification

 

Fraud, Waste, and Abuse Hotline Follow-up

  • Continue to follow up on complaints

 

Review of Financial Statements, Single Audit Reports, and Other Fiscal Data 

  • Financial Statements and Single Audit Reports – Financial condition, improvement opportunities, compliance with reporting requirements*
  • Administration of the Department’s receipt of corrective action plans

 

Audits of Other Organizations 

  • Audit of community based organizations that receive funding from the Department
  • Independent living centers
  • Charter schools
  • Local governments receiving grants from the archives

 

Technical Assistance and Training 

  • Continue to provide periodic training sessions to school business officials, school board members, superintendents, CPAs, and others (in conjunction with Department program staff)
  • Continue to provide technical assistance and information to Department staff, USNY institutions, government officials, and others
  • Continue to partner with various organizations (Office of the State Comptroller, Association of School Business Officials, NYS Society of CPAs, NYS School Boards Association, and others) to improve fiscal accountability