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

Subcommittee on Audits

 

FROM:

Theresa E. Savo 

 

SUBJECT:

Board of Regents Oversight – Financial Accountability

 

DATE:

February 24, 2006

 

STRATEGIC GOAL:

Goal 5

 

AUTHORIZATION(S):

 

 

Executive Summary

 

Issues for Discussion

 

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

 

1.                  Department’s Oversight of Non-degree Granting Proprietary Schools

2.                  Completed Audits

 

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 

 

            Department’s Oversight of Non-degree Granting Proprietary Schools – Staff will brief the Subcommittee members on Department’s activities to ensure:  (1) non-degree granting proprietary schools in New York State provide quality educational programs that give students the necessary skills to secure meaningful employment and (2) students’ financial interests are protected while attending proprietary schools.

 

            Completed Audits – Reports are provided on an Office of the State Comptroller audit of the tuition reimbursement account for non-degree granting proprietary schools, an audit of reimbursement to nonpublic schools for State mandated services, a special review of a school district’s administration of its budget, and an audit of a preschool provider by the New York City Department of Education.

 

Recommendation

 

For item one (Department’s Oversight Activities), the advice and guidance of the Members of the Audit Subcommittee are sought.

 

For item two (completed audits), no further action is recommended.

 

Timetable for Implementation

 

            N/A

 

The following materials are attached:

·              Roadmap

·              Minutes of the February Meeting (Attachment I)

·              Audit Report Abstracts (Attachment II)

·              Audit Reports

 

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

 

Date:  March 20, 2006

Time:  9:00-10:00 am

Location:  Regents Room

TOPIC

OUTCOME

WHO

MINUTES

Opening Remarks

 

Chair

2

Review Agenda/Minutes (Attachment I)

Approval

Abbott

1

Department‘s Oversight of Non-degree Granting Proprietary Schools

Update

Frey and Yates

30

Audit Report Abstracts (Attachment II)

Questions Addressed

SED and OSC Staff

15

Current Issues

Update

Abbott

10

Next Session

Preview

Staff

2

 

Attachment I

 

MEETING OF THE REGENTS SUBCOMMITTEE ON AUDITS

February 13, 2006

 

Subcommittee Members in Attendance:

 

Regent Geraldine D. Chapey, Chair

Regent Joseph E. Bowman, Vice Chair

Regent Milton L. Cofield

 

Discussion Items

 

Regent Chapey opened the meeting by discussing the impact that auditing has had on school district accountability. It was as the result of audits that the new school district accountability initiative came to being. The EMSC/VESID committee will vote today on new regulations improving accountability in school districts.

 

Education Department Fiscal Reports

 

A manager from the Bureau of Budget Coordination described the process used to assemble information in order to prepare the Department's Monthly Fiscal Report. The members were informed that the report is a combination of data from the State accounting system as well as internal projections on planned revenue and expenditures.  The Bureau of Budget Coordination constantly monitors the program offices’ fiscal status and works with them when problems are identified.

 

The Members of the Subcommittee asked that this information be shared with all members of the Board.

 

Previous Meeting Minutes

 

The Subcommittee members approved the minutes of the prior meeting.

 

Audits

 

Staff was available to answer questions on the following audits:

 

Attachment II

 

Audit Report Abstracts

Regents Subcommittee on Audits

March 2006

 

Office of Audit Services

Audit

Major Finding

Recommendations/Response

Seaford Union Free School District Report FW-1005-2

10th Judicial District

$0 adjustment

 

This review was the result of a special request from the Commissioner to look into the circumstances surrounding the Seaford school district disclosing the existence of a $1.7 million surplus subsequent to the end of he 2004-2005 school year. The surplus was not considered in the prepa-ration of the 2005-2006 school year budget.

 

The review found that Seaford did not adequately monitor district finances in the closing months of the school year. Specifically, fund balance projections were not made, monthly budget status reports were not closely monitored, and some accounting records were not reconciled in a timely manner.

 

The review also found the Board had not established a formal budget policy to guide the budget develop-ment process. 

 

 

 

 

7 recommendations

 

The report recommends the District project fund balances on a monthly basis beginning in January, reconcile accounting records on a timely basis, and develop a corrective action plan to address the independent auditors management letter. The report recommends the Board more closely monitor the budget status report, establish polices on budget development and budget preparation, and develop budgetary objectives to guide the District.

 

District officials agree with the recommendations and have taken steps to implement them.

 

 

Small Wonder Preschool Inc.

Report CA-0503-1

 

An audit conducted by the Office of the Auditor General, Department of Edu-cation of The City of New York and Approved by the State Education Department Pursuant to Educa-tion Law Section 4410

11th Judicial District

 

$196,252

 

The audit determined that the School did not comply with SED regulations and guidelines that govern fiscal operations of schools for children with disabilities.

 

The audit recommends total disallowances of $196,252 consisting of $161,472 to the reported costs for agency administrative ex-penses and $34,780 for direct operating and property expenses.

 

The disallowed costs were related to undocumented administrative expenses and questioned costs related to supplies, staff travel, staff development, food, and repairs and maintenance.

 

11 recommendations

 

The report recommends the School cease the practice of commingling personal and business expenses, improve accounting for the preschool program, ensure sufficient documentation exists to support expenses, and safeguard timekeeping records. The report also recommends maintaining required information in personnel folders, maintaining travel logs, better tracking of petty cash, cease borrowing preschool funds for other programs and ensure only authorized individuals sign checks.

 

School officials agree with most of the recommendations and have already implemented many. They disagree with some specific observations in the report. Particularly, they believe time-keeping was appropriate, the personal service expenses of the comptroller were appropriate, competitive bidding was not required, and advertising and interest expenses were allowable.

 

The results of this audit will be used by the Rate Setting Unit to establish audited tuition rates.

 

 

 

 

 

 

 

 

Office of the State Comptroller

Audit

Major Finding

Recommendations/Response

Brentwood Union Free School District Internal Controls Report 2005M-70

10th Judicial District

$0 adjustment

 

The audit found the Board had either not established critical internal controls, or had implemented controls that were improperly designed or operating ineffectively. In addition, the Board did not properly exercise its oversight responsibilities when it was unaware of the fact that an unauthorized individual and an individual who was unable to provide an independent audit of claims approved $165.5 million of District claims. The Treasurer did not properly segregate the duties within her office to ensure that no single person controlled most or all phases of certain transactions. In addition, many cash deposits were not made within the required time period.

 

Weaknesses were identified in the purchasing area including purchasing requi-sitions not being issued, the use of confirming purchase orders, the existence of a double payment, the lack of use of requests for proposals, and in some cases the lack of written agreements with profes-sional consultants.

 

The report also found weaknesses in the District’s capital assets policies and procedures, and the lack of polices regarding cell phone use, travel reimbursement, credit card use, and providing meals and refreshments at meetings.

18 recommendations

 

The report recommends the Board (1) ensure the claims auditor position is appropriately filled, (2) meet with claims auditor periodically and review all warrants, (3) ensure the purchasing agent enforces District policies, (4) require the use of requests for proposals for professional services, (5) enter into written agreements with individuals providing professional services, (6) update the capital assets policy and identify an individual responsible for main-taining the inventory including updating dispositions and trans-fers.

 

The report also recommends the Board monitor cell phone use and adopt policies on the use of District credit cards, mileage reimbursement, and the provision of meals and refreshments at meetings.

 

The report recommends the Treasurer segregate duties within her office and promptly deposit cash receipts.

 

The report recommends that District officials limit the use of confirming purchase orders, and ensure the original invoice is attached to each claim.

 

District officials generally agree with the recommendations and have taken steps to implement many.  

Voorheesville Central School District Report 2006M-4

3rd Judicial District

$216,000 questionable payments

 

The audit found over $216,000 in questionable salary-related payments made to two former District officials.

 

The audit found that over $167,000 of the total amount was paid to the former officials, which they were not entitled to. This included payments for unused vacation leave, for days the officials were absent from work, for compensatory time and personal leave they were not entitled to, and for a stipend that should have been repaid.

 

In addition, $49,000 of the total was paid to the former officials without proper authorization. This included payments for unused vacation days that were not approved by the Board, improper contract pay-ments, and undocumented reimbursements.

 

 

 

 

 

4 recommendations

 

The report recommends the Board continue to aggressively pursue collection of the payments and leave benefits and require its attorney to review written employment contracts prior to approval. The report also recommends that the Audit Committee develop written procedures to monitor admin-istrative leave benefits and submit them to the full Board for approval.

 

Finally, the report recommends the Superintendent ensure that all leave benefits are in accordance with the terms of written employment contracts.

 

District officials agree with the recommendations and have taken action to implement them.

Audit of the Tuition Reimbursement Account for the Fiscal Year Ended March 31, 2005

Report 2005-S-25

$0 adjustment

 

This was a financial audit of the Tuition Reimbursement Account (TRA). The audit found that the financial statements present fairly, in all material respects, the TRA's financial position as of March 31, 2005, and the results of its operations for the fiscal year then ended, in conformity with the modified accrual basis of accounting.

 

The auditors also found that nothing came to the their attention to cause them to believe the Department was not in compliance with application laws. 

 

Finally, the auditors found no internal control deficiencies that would have a material effect on the financial statements.  

No recommendations

Reimbursement to Nonpublic Schools for State Mandated Services

Report 2005-S-20

$0 adjustment

 

The audit raised several issues related to reim-bursement to nonpublic schools for State mandated services. The audit reported the Department needed to develop a method for schools to calculate and apply for reimbursement for implementing a comprehen-sive attendance policy.

 

The audit also found that the Department's current process to review appli-cations for reimbursement from nonpublic schools is inefficient and ineffective, requiring many applications to be reprocessed and creating duplicative work for both the Department and the nonpublic schools.

 

Finally, the audit found that nonpublic schools visited generally maintained suf-ficient documentation to support their claimed expenses.

5 recommendations

 

The report recommends the Department reimburse nonpublic schools for costs incurred in providing mandated services including the implementation of a comprehensive attendance policy. The report also recom-mends compliance with docu-mentation requirements for calculating the hourly rate for salary and benefits, using a risk based approach to require schools to submit supporting documentation to support claims, and finally following up on overpayments identified in the audit.

 

Department officials agree with the findings and have taken steps to implement them. The Department has requested the auditors provide more specific information in order to identify and recoup overpayments.

ASA Institute of Business and Com-puter Technology

Report 2004-T-4

2nd Judicial District

$505,502 adjustment

 

The School received $24.3 million in Tuition Assistance Program (TAP) awards for the 2000-2001 through the 2002-2003 academic years. The audit disallowed $505,502 in TAP funds because the students were incorrectly certified as eligible for the awards.

 

The specific reasons for the students being ineligible were:  not matriculated, not in good academic standing, and not in full-time atten-dance.

3 recommendations

 

1 recommendation to the Higher Education Services Corporation (HESC)

2 recommendations to the State Education Department

 

The report recommends that HESC recover the funds from the School.

 

The report recommends the Department ensure the School’s compliance with requirements for matriculation, good academic standing, and full-time status.  The report also recommends the Department reevaluate the policy on the use of affidavits as evidence of high school graduation.

 

Department officials agree with the recommendations.