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Meeting of the Board of Regents | November 2008

Saturday, November 1, 2008 - 8:40am

A Report on the November 17, 2008 Meeting

Of the Regents Subcommittee on Audits



Your Regents Subcommittee on Audits met yesterday afternoon.


The Subcommittee was presented with 26 audits this month. The Department’s Internal Audit Workgroup identified nine audits for particular follow up and briefed us on three.  We were briefed on the Office of the State Comptroller’s audit of school district’s use of the Employee Benefit Accrued Liability Reserve Funds. The audit found that many districts were reserving more funds than their projected future and current liability. We asked to be briefed at a future meeting on the specific actions individual Districts take in response to this audit. We were also briefed on the audit of Niagara Falls City School District. Counsel’s office has reviewed the audit and recommended that in follow-up, the Office of Audit Services request documentary support of corrective actions taken by the District. Finally, we were told that in response to the audit of the Highland Central School District, Counsel’s office has written the district requiring board members to receive mandatory training and submit documentation to the Department by December 10, 2008.


The Members of the Subcommittee were presented with a report on the status of Department and District actions regarding the financial condition of the Wyandanch Union Free School. The District has identified more than $1.5 million in spending cuts for the 2008-09 school year and continues to look for additional reductions. Discussions continue regarding deficit financing for prior year’s deficit. The District and Department staffs have been working closely together to address these issues. The Department will continue to monitor the District’s financial condition by reviewing monthly fiscal reports and work closely with the Superintendent, the Board of Education, District administrators and teachers, and others to address both short and long-term priorities for the District.    


We were also presented with a proposed policy change which would require school district claims auditors to undergo mandatory training. Staff believes this requirement will reduce the repeat audit findings in the areas of claim processing and procurement. We approved the proposal and now staff will reach out to the interested parties to obtain input and feedback.  I anticipate bringing this to the EMSC committee in the near future for discussion and final approval before consideration by Full Board.


I have attached the results of the full Review of Audits presented by the Department’s Internal Audit Workgroup for your information. The workgroup consists of Deputy Commissioners’ Ahearn and Savo, Coordinator Charles Szuberla, Deputy Counsel Erin O’Grady-Parent, Audit Director James Conway.






Regents Subcommittee on Audits

November 2008

Review of Audits Presented

Department’s Internal Audit Workgroup


Newly Presented Audits


We reviewed 26 audits that are being presented to the Subcommittee this month.  The audits were of 20 school districts, 3 BOCES, 1 examined reserve fund balances at 19 school districts, 1 examined Medicaid Reimbursements at 5 school districts, and 1 financial audit of a Department administered fund.  The audits were issued by the Office of the State Comptroller (OSC) and the Office of Audit Services.  The findings were in the areas of information technology, claims processing, procurement, cash, financial reporting, payroll, segregation of duties, conflict of interest, fingerprinting, and extraclassroom activity fund.


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 school district audits, two BOCES audits, and one Department audit for further review and follow-up.


  • Employee Benefit Accrued Liability Reserve Funds
    (Bay Shore, Bellmore-Merrick, Brentwood, Connetquot,  Copiague, Cuba-Rushford, Ellicottville, Farmingdale, Garden City, Haverstraw, Hewlett-Woodmere, Horseheads, Levittown, North Collins, North Merrick, Queensbury, South Orangetown, Westhampton Beach, and Whitesville)


Summary of Audit


Reserve funds are created under various laws which determine how the reserves can be established, funded, expended or discontinued. School districts can establish an Employee Benefit Accrued Liability Reserve (EBALR) fund under Section 6-p of General Municipal Law (GML) and use EBALR monies to pay employees for accrued leave time due to them when they leave district employment. Interest earned on money in the EBALR must become part of the reserve fund. 


School district officials have reserved far more money than necessary in their EBALR funds.  Two-hundred and fifty-one school districts across the State could have as much as $407 million more in these reserve funds than they need to pay for compensated absences liabilities and have added more than $112 million of surplus to their EBALR funds in the 2006-2007 fiscal year alone. Excess EBALR funds represent money that could be redirected to other purposes to benefit taxpayers.  Currently, there are legal restrictions on how the districts can use this money and require legislative approval to remove these funds from the reserves and use them for other purposes.  Other problems found include: districts not properly calculating their liability for compensated absences, not using the fund to actually pay for compensated absences, and not depositing the interest earned on the EBALR funds into the reserve, as required.  Finally, school districts have increased taxes over the past few years even as they moved far more money than needed into their EBALR fund. From 2002-2003 to 2006-2007, the 19 school districts we reviewed in detail collectively increased their EBALR reserves by about $100 million (136 percent); during the same period, property taxes in these districts increased by 30 percent, or by about $243 million.


Follow-up Action


Department staff will coordinate with the New York State Association of School Business Officials,  the New York State Council of School Superintendents, and the New York State School Boards Association in providing guidance to the districts.


  • HighlandCentral  School District


Summary of Audit


The payroll function was not segregated, and a lack of sufficient oversight or other compensating controls allowed numerous overpayments, and some underpayments, to occur.  The District overpaid four former employees a total of $9,572 for unused leave.  Thirteen of 19 employees tested received inaccurate payroll payments for a four-week period.  The board of education also failed to meet the training requirements for board members on financial oversight responsibilities.  Five of nine board members serving during the audit period were required to have training on their financial oversight, accountability, and fiduciary responsibilities, but chose not to receive the training.  Two members indicated the training offered was not convenient, and did not believe it was necessary for them to attend.


Follow-up Action


Counsel’s office is reviewing this audit to determine appropriate action to take.


  • Moriah
    Central School District


        Summary of Audit


A lack of oversight by District officials resulted in a significant decline in the District’s general fund balance from $183,006 as of June 30, 2003 to $39,849 as of June 30, 2007. A deficit fund balance in the cafeteria fund grew from $3,511 at June 30, 2003 to $47,897 at June 30, 2007. Board of education members did not receive adequate budgetary status reports to allow them to monitor revenue projections and appropriations. In recent years, the District has had to issue revenue anticipation notes (RANs) on a recurring basis in order to maintain sufficient cash flow for operating purposes. The amount of RANs issued has increased from $500,000 in 2001-2002 to $1.5 million in 2007-2008 with no budgetary appropriations made available to redeem the notes.


Follow-up Action


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


  • Niagara Falls City School District


Summary of Audit


The District did not have established written policies and procedures for the processing and disbursement of payroll and related benefits, or for monitoring to ensure compliance with applicable employment agreements. The District overpaid 272 salaried employees in excess of $500,000 in the 2005-2006 school year. In addition, 10 employees received salaries totaling $964,099, as well as other employee benefits, none of which were authorized by a written agreement or board policy.  The superintendent did not record the use of any vacation time until the 2005-2006 school year, and each year the superintendent requested a lump sum payment for unused vacation days as provided in his employment contract. Due to his failure to accurately account for his leave time, the District inappropriately paid the superintendent over $10,800 for 21 vacation days during the 2004-2005 year. Since there is evidence that the superintendent has been taking vacations every year, there is a strong possibility that the District has inappropriately made lump sum payments to him for a number of years. 


The District has had difficulty obtaining supporting documentation from employees, which has resulted in the District paying credit card bills late and incurring late fees totaling $5,038 over a three-year period. There were certain instances when officials used their District credit cards for purposes strictly prohibited by policy, such as, a designated cardholder allowed another individual to use his or her District credit card. In addition, the superintendent used his District credit card to pay for travel expenses totaling over $2,200 which were related to personal consulting work and no evidence was found that the superintendent reimbursed the District for these expenses.


Follow-up Action


Counsel’s office is reviewing this audit to determine appropriate action to take.


  • Computer Power Save (Mount Vernon, Newburgh, North Syracuse, Schenectady, Williamsville)


The school districts have not enacted computer power management policies and

procedures. By enabling power management settings, such as, power save modes, changing and/or enabling power management policies and practices, and by establishing directives instructing computer users to power down computers during periods of inactivity, the audited school districts could save as much as $240,000 annually. Further, these school districts can collectively save approximately 1.8 million kilowatt-hours, and reduce carbon dioxide, nitrous oxide and sulfur dioxide emissions by more than 1.5 million pounds annually.  For perspective, there are 736 schools across New York State which in 2004 had about 840,000 computers. The five audited school districts had 15,679 computers. These districts could save about $212,300 annually ($13.54 per computer) by enabling power save settings and/or shutting down during periods of inactivity. If similar conditions exist in school districts statewide, districts could collectively save over $11.3 million annually or reduce annual energy consumption by over 84 million kWh, and reduce greenhouse gas emissions by over 69.7 million pounds, which is the equivalent of removing 5,790 cars from the road.


Follow-up Action


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


  • Hawthorne Cedar Knolls Union Free School District, Highland Central School District (also mentioned above), Oxford Academy and Central School District, and the Vestal Central School District-Internal Controls Over Selected Financial Activities and Computer Data


Summary of Audits


Oxford and Vestal appointed their respective BOCES as claims auditor.  Each BOCES provides significant services to the districts.  Hawthorne Cedar Knolls and Highland have weaknesses in their claims auditing function, such as, claims auditor not following policies and payments were made before claims were audited.


Follow-up Action


A Department workgroup has been convened to study the OSC audit findings related to central business office functions.  In addition, a policy change is being proposed by the Internal Audit Workgroup to require mandatory training for claims auditors.


  • Regional Early Childhood Direction Center (RECDC) of Monroe #1 BOCES


Summary of Audit


The RECDC claimed reimbursement for expenditures that were not adequately documented, and a few that were unallowable or inappropriate.  In addition, RECDC did not meet other contract requirements, such as, employing a full-time director, providing in-kind support by Monroe #1, and submitting asset inventory.  It also overstated its reported data to VESID.  There were internal control weaknesses related to accounts payable processing and claims auditing.


Follow-up Action


Upon Monroe #1’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.  Staff from the Office of Education – P-16 and OAS will also follow-up with the district superintendent on these issues.


  • Washington-Saratoga-Warren-Hamilton-Essex BOCES


Summary of Audit


The BOCES expended over $88,000 for meals and refreshments that did not always have prior approval or adequate supporting documentation.  The board of education also placed two independent contractors on the payroll and incorrectly enrolled them in the Employees’ Retirement System.


Follow-up Action


Staff from the Office of Education - P-16 will meet with the district superintendent to discuss the issues raised in this audit.


  • SED Tuition Reimbursement Account


Summary of Audit


This was a financial statement audit of the Tuition Reimbursement Account (TRA). The TRA's statement of revenues, expenditures, and changes in fund balance for the two fiscal years ended March 31, 2006 and March 31, 2007 and the related balance sheets (statements) were audited and, in the opinion of the auditors, the statements present fairly, in all material respects, the TRA’s financial position as of March 31, 2006 and March 31, 2007.


The report on Department compliance found the Department is currently not in compliance with the interpretation of law by OSC, as it pertains to certain TRA assessment provisions. However, the Department has taken action to revise the Commissioner's Rules and Regulations as well as to obtain legislative revision.


Follow-up Action


No action necessary.