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

TO:	The Honorable the Members of the Board of Regents
FROM:	Michael Abbott
COMMITTEE:	Audits
TITLE OF ITEM:	Audit Activities
DATE OF SUBMISSION:	October 8, 2004
PROPOSED HANDLING:	Discussion
RATIONALE FOR ITEM:	Enable the Board of Regents to review audits
STRATEGIC GOAL:	5
AUTHORIZATION(S):

SUMMARY:

The following materials are attached.

· Roadmap

· Minutes of September Meeting (Attachment I)

· Topics for Future Meetings (Attachment II)

· Audit Report Abstracts (Attachment III)

· Audit Reports

REGENTS SUBCOMMITTEE ON AUDITS MEETING ROADMAP	Date: November 4, 2004 Time: 11:00-12:00 pm Location: 146 EB Last Revised 11/1/04
TOPIC	OUTCOME	WHO	MINUTES
Opening Remarks		Chair	2
Review Agenda/Minutes (Attachment I)	Approval	Abbott	1
Current Issues	Update	Abbott	10
Topics for Future Meetings (Attachment II)	Agreement	Abbott	5
Tactical Audit Plan and the Internal Audit Function	Questions Addressed	SED Staff	20
Audit Report Abstracts (Attachment III)	Questions Addressed	SED and OSC Staff	20
Next Session	Preview	Staff	2

Attachment I

MEETING OF THE REGENTS SUBCOMMITTEE ON AUDITS

September 9, 2004

Subcommittee Members in Attendance:

Regent Geraldine D. Chapey, Chair

Regent Arnold B. Gardner, Vice Chair

Regent Joseph E. Bowman

Other Members of the Board in Attendance:

Adelaide L. Sanford, Vice Chancellor

Discussion Items

Regent Chapey opened the meeting by welcoming everyone and reminding them of the importance of accountability in the public sector and our responsibilities under Regents Goal 5.

Previous Meeting Minutes

The Subcommittee approved the minutes of the prior meeting.

VESID Internal Audit

Staff briefly summarized the results of the audit. Commissioner Mills provided a timeline describing the Department's initiation of the audit as a follow-up to the Office of the State Comptroller’s (OSC) audit of the VESID Utica office, the internal discussion of preliminary findings in February 2004, immediate actions taken at that time, the release of the final report, and steps taken in response. The Commissioner characterized the results as a management failure. VESID Deputy Commissioner Rebecca Cort reinforced the Commissioner's observations and described some of the short-term and long-term changes that will be made in VESID.

Current Issues

An Assistant Comptroller from OSC updated the members on the status of the audit of the Roslyn Union Free School District as well as describing the extent of audits planned for 19 other districts. The Assistant Comptroller stated that the final results of the Roslyn audit will identify a larger pattern of abuse than has been reported in the press. He also described a work group charged with improving accountability at the district level. The work group includes Department representation as well as many stakeholders from the education community. Department staff elaborated on the activities of the work group: indicating the possibility of changes to the way districts hire their independent accountants, requiring better communication between the accountants and school boards, and the possibility of requiring audit committees.

Roles and Responsibilities

Staff from OAS provided the members with a draft 12-month agenda outlining possible topics for discussion. The topics included some identified by benchmarking best practices for audit committees in the private sector. Input was obtained and the agenda will be finalized for the next meeting.

Audits

Staff from OSC were available to answer questions on the following audits:

§ Highbridge Advisory Council Family Services, Inc.

§ No Child Left Behind

A discussion followed on potential actions that may be taken against the management of the Highbridge Advisory Council Family Services, Inc. It was agreed that staff would follow-up and report back to the Subcommittee.

Attachment II

Regents Subcommittee on Audits

Topics for Discussion

September 2004 – July 2005

Date	Location	Topic
September 9, 2004	Albany	VESID Internal Audit
October 4-5, 2004	Brooklyn & Staten Island	No Subcommittee Meeting
November 4-5, 2004	Albany	Tactical Audit Plan and the Internal Audit Function
December 16-17, 2004	Albany	Ethics and Conflict of Interests
January 10-11, 2005	Albany	Risk Assessment
February 7-8, 2005	Albany	School District Financial Condition
March 14-15, 2005	Albany	OSC Audits of School Districts
April 18-19, 2005	TBD	No Subcommittee Meeting
May 16-17, 2005	Albany	Internal Controls
June 20-21, 2005	Albany	Annual Report on Subcommittee Activities
July 21-22, 2005	Albany	No Subcommittee Meeting – Regents Retreat

Topics for Consideration in 2005-06 Topics Covered in 2003-04

CPA Audits of School Districts Single Audit – Federal Funds

Data Integrity – Fiscal, Student Performance Audit of NYS Financial Statements

Budget Preparation, Adoption, and Monitoring

Attachment III

Audit Report Abstracts

Regents Subcommittee on Audits

November 2004

Office of the State Comptroller

Audit

Major Finding

Recommendations/Response

Compliance with Section 3602 Subdivision 26 of the State Education Law

Report 2004-F-01

$0 adjustment

This was a follow-up audit. The original audit, which was issued on December 13, 2002, assessed district compliance with the requirements for providing an instructional technology plan as specified by Law and Department monitoring and oversight of districts’ efforts to provide instructional technology plans.

The follow-up audit found that the Department addressed the matters contained in the initial report and implemented all four recommendations.

4 recommendations

The original report recommended the Department develop specific guidelines for districts to follow in the preparation of technology plans, review all plans and develop formal guidance to follow in evaluating the plans, develop multiple methods to instruct districts to prepare adequate plans, and follow-up with those districts that do not have a plan.

The Department implemented all of the recommendations.

State Agency Internal Audit Units' Compliance with the Internal Control Act

Report 2003-S-14

$0 adjustment

The New York State Governmental Accountability, Audit and Internal Control Act (Act), passed in 1987, required State agencies to establish systems of internal controls and mandated internal audits of funds, materials, and workforce performance. The Act was made permanent in 1999 and made the Division of Budget responsible for designating the agencies that must have an internal audit function. The Act also established certain requirements that internal audit units must follow.

The audit found that more than 50 percent of the 34 internal audit units examined have serious problems in complying with the Act.

The audit found that the Department's internal audit unit (OAS) was in full compliance with 5 of the 11 criteria examined. OAS was not in compliance with standards for organizational independence, conducting annual risk assessments, developing a risk based audit plan, and monitoring audit results. The audit also found OAS to be in partial compliance with standards for evaluating internal controls and operations to identify weaknesses. Finally, the audit concluded OAS is in partial compliance with the standard for quality assurance.

1 recommendation

The report does not contain specific recommendations and concludes that agencies should comply with the requirements of the Act and the Professional Standards for Internal Auditing.

Department officials responded to the observations in the report by agreeing with three of the six observations. Officials disagree that OAS lacks organizational independence. At the time of the audit, OAS reported to the Associate Commissioner for Planning and Policy Development who reported directly to the Commissioner and Chief Operating Officer. In addition, OAS also reports to the Regents Subcommittee on Audits (RSOA). These relationships provide sufficient organizational independence.

Officials also disagree with the observation that risk based planning is not done. The two-year tactical audit plan takes into account the Board of Regents Strategic Plan, risk assessments, and input from senior managers and the RSOA. Finally, Department officials disagree with the determination that OAS is in partial compliance with the requirement to evaluate the agency’s internal controls and operations and identify weaknesses. A variety of methods are used to meet this standard including internal audits, OSC audits of Department activities, the annual internal control certification process, and external audits of entities regulated by the Department.

The Honorable the Members of the Board of Regents

MEETING ROADMAP

Location: 146 EB