Meeting of the Board of Regents | September 2009
REGENTS SUBCOMMITTEE ON AUDITS
The Board of Regents
September 14, 2009
Regent Geraldine Chapey, Chair of the Regents Subcommittee on Audits submitted the following report.
Your Regents Subcommittee on Audits had its scheduled meeting on September 14, 2009. The member of the Subcommittee in attendance was Regent Chapey. Chancellor Tisch also attended.
Items for Discussion
Chair’s Remarks: Regent Chapey welcomed everyone and opened the meeting by reinforcing the importance of audits, and the information they provide to the Board of Regents and Department management. She stated we are at a critical point in time with the flow of stimulus funds to educational institutions and that we must have appropriate controls to ensure that in the next two to three years the stimulus funds are appropriately used for educational reform. She complemented the work of the Department’s Internal Audit Work Group in reviewing and summarizing the 77 audits that were presented to the Subcommittee this month.
Office of Audit Services (OAS) 2009-2011 Audit Plan Activities related to the American Reinvestment and Recovery Act (ARRA) Funds
Staff described the OAS development of plans for auditing ARRA funds on a continuous basis. OAS has developed both an internal and external risk assessment to identify appropriate audit topics. The Office will be conducting both internal and external audits based on the risks they have identified. The internal audits will examine key Department processes for appropriately administering the funds. It is anticipated the audits will examine the application review and approval process; the process for receiving information and posting to recovery.gov; payment processing; and sub recipient monitoring. The external audits will examine, among other things, the reliability and integrity of data submitted by the sub recipients, the support for payment requests, the management and use of cash, and final reports. The Chancellor reinforced the importance of appropriately administering and controlling these funds.
External Quality Assessment of the OAS
Staff summarized the results of an external quality assessment of the OAS. The assessment found that OAS received the highest overall rating, “generally conforms” to the Standards. The report did include recommendations to improve the operation of the program in four areas: the OAS Charter, Independence and Objectivity, Nature of Work, and Monitoring. The Department is reviewing the recommendations and expects to fully comply with the assessment.
Presentation of Audits
Seventy-seven audits were presented to the Subcommittee this month. They were all reviewed by the Department’s Internal Audit Workgroup and six common trends were identified. The trends identified included issues related to fund balance and reserves; potential conflicts of interest; lack of compliance with board training requirements; fingerprinting and criminal history background checks; claims audit and internal audit issues; and audits of the New York City Department of Education, which included monitoring of supplemental education services, awarding of non-competitive contracts, school nutrition, the administration of New York State standardized tests, and the calculation of high school graduation rates.
I have attached the results of the full Review of Audits presented by the Department’s Internal Audit Workgroup for your information.
Regents Subcommittee on Audits
Review of Audits Presented
Department’s Internal Audit Workgroup
Newly Presented Audits
We reviewed the 77 audits that are being presented to the Subcommittee this month. Seventy-five audits were issued by the Office of the State Comptroller (OSC) and two by the City of New York’s Office of the Comptroller. Sixty seven of the audits were of school districts, including five of the New York City Department of Education, seven of BOCES, one of a degree granting institution of higher education, and one of a VESID district office. The findings were in the areas of procurement, budgeting, financial reporting, payroll, information technology, claims processing, cash, extraclassroom activity funds, conflict of interest, fingerprinting and others such as the provision of supplemental education services, Medicaid reimbursement, control environment, administration of standardized tests, and reporting of graduation rates.
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 six categories of audit findings for further review and follow-up.
- Fund Balance, Reserves and Budgeting Practices (Attica, Depew, Erie 2 BOCES, Falconer, Garden City, Genesee Valley BOCES, Grand Island Kenmore-Tonawanda, LaFargeville, Levittown, Ontario-Seneca-Yates-Cayuga-Wayne BOCES, Red Creek, Rye Neck and Sweet Home)
Summary of Audits
The findings generally indicate that the districts routinely overestimated expenditures and underestimated revenues resulting in the accumulation of operating surpluses over the years and unreserved fund balances exceeding the limit allowed by law. These surpluses are used to establish various reserves. Some of the districts did not use the reserve fund for its intended purpose and made payments out of the General Fund instead. Other findings include over funding of some of the reserves and not crediting the interest earned in the appropriate reserve account.
The Office of Audit Services will continue to follow-up on the corrective action plans until all significant recommendations are fully implemented or no longer applicable. The Comptroller’s office will also begin a process to assess the validity of balances in the Employee Benefit Accrued Liability Reserves. The Department will monitor legislative actions relative to fund balance and reserves.
- Conflict of Interest (Deer Park, Fulton, Grand Island, Greenburgh-Graham)
Summary of Audits
In general, the findings relate to board members’ or school district employees’ interest in a district’s contract due to a relationship with the vendor.
The Office of Counsel is reviewing the audit findings to assess the need for further action.
- Board Training (Greenburgh-Graham, Greenburgh-North Castle, Marlboro and Raquette Lake)
Summary of Audits
The audits found instances of school board members that had not taken the required fiscal accountability training.
The Office of Counsel is reviewing for potential action.
- Fingerprinting (Goshen, Rye Neck, New York City Supplemental Educational Services)
Summary of Audits
The audits found instances of independent contractors, that have direct contact with students, not having the required criminal history backgroud check conducted.
The audits have been referred to the Office of School Personnel Review and Accountability (OSPRA) for follow up and to make the districts aware of responsibilities related to criminal history background checks.
- Claims Auditing and Internal Auditing (Hammondsport, Madison-Oneida BOCES, Skaneateles, Yorkshire-Pioneer)
Summary of Audits
The audits found control concerns with the claims auditor, or internal audit function. In one case the claims auditing was being done by a BOCES that provided material services to the district. In another two cases the claims auditor was not independent of the business office and in another instance the BOCES was providing the internal auditor.
The Department has drafted legislation which was introduced in the Assembly and Senate to provide school districts with flexibility in carrying out their claims auditing function.
In the other instances, OAS will follow-up on the corrective action plans to ensure the inappropriate controls are corrected.
- New York City Department of Education
Summary of Audits
There are five audits of the New York City Department of Education (DOE) included in this month’s material. One audit examined the DOE’s Monitoring of Supplemental Educational Services and found that documentation maintained by the providers was not sufficient. Another audit examined the Awarding of Non-Competitive Contracts and found poor documentation over the awarding and that work began on some contracts prior to approval. An audit examined School Nutrition and identified improvement opportunities in the area of vending machine policies. One audit examined Administration of New York State Standardized Tests and found weaknesses in oversight of test monitoring. Finally, an audit examined the Calculation of High School Graduation Rates and found that 9.6 percent of a sample of student records failed to contain sufficient documentation of meeting graduation requirements. The DOE subsequently provided supporting documentation for all but two of the samples.
Appropriate Department offices have been made aware of the audits and findings to take appropriate action. OAS will review the corrective action plans to ensure any unimplemented recommendations are followed.