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Meeting of the Board of Regents | December 2008

Monday, December 1, 2008 - 9:00am

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:

November 24, 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:

 

  • Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment II)
  • Audit of the Financial Statements of New York State including the State Education Department
  • Department’s Internal Control Process and Annual Certification
  • Audit Trend – Payroll (Attachment V)

 


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 



 

1.            Completed Audits

              The Subcommittee is being presented with 19 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

 

Bay Shore Union Free School District

Brookfield Central School District

Connetquot Central School District

Crown Point Central School District

Ellicottville Central School District

Farmingdale Union Free School District

Honeoye Central School District

Medina Central School District

New Hartford Central School District

Newark Valley Central School District

North Bellmore Union Free School District

North Merrick Union Free School District

Peru Central School District

Pocantico Hills Central School District

Port Washington Union Free School District

Queensbury Union Free School District

Roosevelt Union Free School District

South Lewis Central School District

West Canada Valley Central School District

 

2.           Audit of the Financial Statements of New York State including the State Education Department – The Department’s revenues and expenses are not audited separately, but are included in the audit of New York State.  The independent auditors provided an unqualified opinion on the 2007-2008 financial statements for New York State.  This means the financial statements present fairly, in all material respects, the financial position of New York State.  The report can be used to assist the Board of Regents in helping fulfill its oversight responsibilities for the Department’s financial and reporting practices.

 

  • Department’s Internal Control Process and Annual Certification – Staff will brief the Subcommittee members on the Department’s process to help ensure key risks are identified and adequate internal controls are in place.  Staff will also brief the Subcommittee members on the requirement to annually certify to the Division of the Budget that the Department has complied with certain provisions related to internal controls.

 

  • Audit Trend – Payroll – 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 is payroll issues. Department staff will describe the finding in more detail. (Attachment V)

 


Recommendation

 

For item one (Completed Audits), item two (Audit of the Financial Statements of New York State), and item three (Internal Control Process and Annual Certification), no further action is recommended.  For item four (Audit Trend - Payroll), 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 November 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 - Payroll (Attachment V)

 


 

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

 


Date:  December 2008


Time:  TBD


Location:  TBD


TOPIC


OUTCOME


WHO


MINUTES

Opening Remarks

 

Chair

3

Review Agenda/Minutes (Attachment I)

Approval

Conway

7

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

15

Audit of the Financial Statements of New York State

Questions answered

KPMG Staff

15

Internal Control Process and Annual Certification

Information

Rivers

10

Audit Trend – Payroll (Attachment V)

Information

Guzman

10





 

Your Subcommittee on Audits held its scheduled meeting on November 17, 2008.

 



Subcommittee Members in Attendance:

 

Geraldine D. Chapey, Chair

Regent Arnold B. Gardner

Regent Joseph Bowman Jr.

 



Other Members of the Board of Regents in Attendance:

 

Regent Roger Tilles

Regent James R. Tallon Jr.


 



Discussion Items



 

  • Regent Chapey welcomed all attendees and recognized that the world of auditing has been changing and has evolved into a very connective process. It used to be that separate areas of the Department would review findings and deliberate on their impact. Audits are now recognized as integral to all areas of the State Education Department.  The Department has an internal workgroup to review audits and identify critical issues.

 

  • Charles Szuberla, Coordinator of School Operations and Management Services, gave a 60 day status report on the actions taken to assist Wyandanch with their fiscal and academic problems.  A letter was sent to the District on October 24, 2008.  Several of the Regents visited Hempstead and Wyandanch this past week.  The District has identified more than $1.5 million in spending cuts for the 2008-2009 school year and continues to look for additional reductions. The District has made adjustments to non-personnel and non-instructional expenses, as well as instructional and academic expenses. The District still has to provide its final financial statements. The Department supports deficit financing to cover the $2.5 million deficit from last year and Title I money owed. A discussion followed regarding the methods the Department will use to continue to monitor the District’s fiscal condition.



 

  • This month 26 audits were presented to the Subcommittee.  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 Department’s Internal Audit Workgroup identified six school district audits, two BOCES audits, and one Department audit for further discussion.  The Subcommittee was briefed on three.



 






  • Employee Benefit Accrued Liability Reserve (EBALR) 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)

 

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. 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.

  

  • HighlandCentral  School District

 

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. The State Education Department’s Counsel has notified the District the board members must receive the required training and submit documentation by December 12, 2008.

 


  • Niagara Falls


    City


    School District

 

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 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.

 

  • Completed audits presented this month:

 

Office of Audit Services

 

Regional Early Childhood Direction Center of Monroe #1 BOCES

 

Office of the State Comptroller

 

Brighton Central School District

Cooperstown Central School District

Dobbs Ferry Union Free School District

Employee Benefit Accrued Liability Reserve Funds (Bay Shore UFSD, Bellmore-

     Merrick CHSD, Brentwood UFSD, Connetquot CSD, Copiague UFSD, Cuba-

     Rushford CSD, Ellicottville CSD, Farmingdale UFSD, Garden City UFSD,

     Haverstraw CSD, Hewlett-Woodmere UFSD, Horseheads CSD, Levittown

     UFSD, North Collins CSD, North Merrick UFSD, Queensbury UFSD, South

     Orangetown CSD, Westhampton Beach UFSD, and Whitesville CSD)

Hawthorne Cedar Knolls Union Free School District

Highland Central School District

Honeoye Falls-Lima Central School District

Long Lake Central School District

Mid-Hudson Regional Information Center (Ulster BOCES)

Moriah Central School District

Mount Vernon City School District

Newburgh Enlarged City School District

Niagara Falls City School District

North Syracuse Central School District

Oxford Academy and Central School District

Oysterponds Union Free School District

Schenectady City School District

SED - School District Medicaid Reimbursement (Amsterdam City SD

    (Greater), Johnstown City SD (Greater), Lansingburgh CSD, Peru CSD,

    Plattsburgh City SD, Salmon River CSD, Saranac CSD, and

    Shenendehowa CSD)

SED – Audit of the Tuition Reimbursement Account for the Two Fiscal

    Years Ended March 31, 2006 and March 31, 2007

Tupper Lake Central School District

Vestal Central School District – 2 reports

Washington-Saratoga-Warren-Hamilton-Essex BOCES

West Genesee Central School District

Williamsville Central School District

 

  • A proposed policy change to require mandatory training for claims auditors was presented to the Subcommittee. This policy was developed after analysis of over 300 school district audits.  The claims auditor’s role is a critical one because a diligent, independent-minded and knowledgeable claims auditor can prevent loss of financial integrity simply by questioning the appropriateness of a proposed expenditure.  This proposed policy change would require each claims auditor to receive four hours of mandatory training. The Subcommittee voted to approve the conceptual proposal and directed staff to reach out to the Office of the State Comptroller, the New York State School Boards Association, the New York State Council of School Superintendents and the New York State Association of School Business Officials for comment. The proposal will be brought to the Committee on Elementary, Middle, Secondary and Continuing Education for further review.

 

  

 


Attachment II


 


Regents Subcommittee on Audits


December 2008


Review of Audits Presented


Department’s Internal Audit Workgroup



 



 

Newly Presented Audits

 

We reviewed 19 school district audits that are being presented to the Subcommittee this month.  The audits were issued by the Office of the State Comptroller (OSC). The findings were in the areas of procurement, claims processing, payroll, cash, financial reporting, information technology, extraclassroom activity fund, segregation of duties, budgeting, conflict of interest, fingerprinting and fuel inventories.

 

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 some aspect of seven school district audits for further review and follow-up.

 


  • Bay Shore Union Free School District, Connetquot Central School District, Ellicottville Central School District, Farmingdale Union Free School District, North Merrick Union Free School District, and the Queensbury Union Free School District

 


Summary of Audits

 

One aspect of these audits was the districts’ use of the Employee Benefit Accrued Liability Reserve (EBALR) fund.  These reserve funds are created under various laws which determine how the reserves can be established, funded, expended or discontinued. School districts can establish an EBALR fund under Section 6-p of General Municipal Law (GML) and use EBALR fund monies to pay employees for accrued leave time due to them when they leave district employment. Interest earned on money in the EBALR fund must become part of the reserve fund. The audits found that these districts reserved more than was necessary to meet their liabilities. 

 


Follow-up Action

 

Department staff discussed the use of reserves with officials from two of the districts.  In addition, the Office of Audit Services will review the 90 day corrective action plans for ultimate resolution of the findings.

 







  • Ellicottville


    Central School District

 


Summary of Audit

 

As of June 30, 2006, the unreserved and unappropriated general fund balance totaled $1.67 million, which represented 17 percent of the $9.7 million budgeted for the 2006-2007 fiscal year. This amount is in excess of the 2 percent limit that Real Property Tax Law authorized a school district to retain. The District also had reserves in amounts that are not necessary or reasonable.

 


Follow-up Action

 

Staff analysis determined that the District’s fund balance has exceeded the limits established by Real Property Tax Law every year since the 1999-2000 school year. At its highest the District’s unreserved undesignated general fund balance was over 25 percent as of June 30, 2003. As of June 30, 2007 it has been reduced to 8.9 percent which remains above the legal limit. Office of Audit Services staff will assess the adequacy of the District's corrective action plan in reducing the fund balance to the legal limit and will follow-up as needed.

 


  • Roosevelt Union Free School District

 

        Summary of Audit

 

At the completion of the first quarter of the 2008-2009 fiscal year, the District's spending has generally been within the limits established by the board of education in its enacted budget. There were, however, several areas of concern which should be addressed by District officials. The District is not making adequate use of its encumbrance system to control expenditures. Many known expenditures have not been encumbered and some budgetary accounts have not been accurately established.

       


Follow-up Action

 

Department and District officials have indicated that corrective actions have been taken. The Office of the State Comptroller’s second quarter report will provide documentation of implementation.


 

Audit

Procurement

Claims Processing

Payroll

Cash

Financial Reporting

Information Technology

Extraclassroom Activity Fund

Segregation of Duties

Budgeting

Conflict of Interest

Fingerprinting

Other

 

Bay Shore Union Free School District

 

 

 

 

 

 

 

 

 

Brookfield Central School District

 

 

 

 

 

 

 

 

 

Connetquot Central School District

 

 

 

 

 

 

 

 

Crown Point Central School District

 

 

 

 

 

 

 

 

 

 

Ellicottville Central School District

 

 

 

 

 

 

 

 

 

Farmingdale Union Free School District

 

 

 

 

 

 

 

 

 

Honeoye Central School District

 

 

 

 

 

 

 

 

 

 

Medina Central School District

 

 

 

 

 

 

 

 

 

 

 

New Hartford Central School District

 

 

 

 

 

 

 

 

 

 

 

Newark Valley Central School District

 

 

 

 

 

 

 

 

 

North Bellmore Union Free School District

 

 

 

 

 

 

 

North Merrick Union Free School District

 

 

 

 

 

 

 

 

 

Peru Central School District

 

 

 

 

 

 

 

 

Pocantico Hills Central School District

 

 

 

 

 

 

 

 

 

Port Washington Union Free School District

 

 

 

 

 

 

 

 

 

Queensbury Union Free School District

 

 

 

 

 

 

 

 

 

 

Roosevelt Union Free School District

 

 

 

 

 

 

 

 

 

South Lewis Central School District

 

 

 

 

 

 

 

 

 

 

 

* West Canada Valley Central School District (footnote 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


December 2008 Total


8


5


10


5


5


11


1


1


1


3


1


1

 

* Other:

1

Fuel Inventory







 


Summary of Current and Prior Audit Findings

 

 

May 2007 - April 2008

May 2008

June 2008

September 2008

October 2008

November 2008

December 2008

Running Total

Procurement

97

9

2

35

6

6

8

163

Capital Assets

18

0

0

1

0

0

0

19

Claims Processing

108

9

3

16

3

7

5

151

Payroll

107

13

2

24

5

7

10

168

Cash

80

13

3

21

4

4

5

130

Financial Reporting

64

5

1

15

3

8

5

101

Information Technology

100

8

1

25

6

11

11

162

Capital Construction

5

0

0

0

0

0

0

5

Extraclassroom Activity Fund

7

0

0

6

1

1

1

16

Segregation of Duties

47

4

3

6

2

2

1

65

Budgeting

9

1

6

1

1

0

1

19

Conflict of Interest

10

2

0

4

1

1

3

21

Fingerprinting

0

5

1

0

1

1

1

9

Other

7

2

5

19

4

17

1

55

Total Findings

659

71

27

173

37

65

52

1,084

 







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; improper classification of employees; insufficient policies and procedures for the employee retirement system; improper contractual benefit payments; and improper longevity payments to the former superintendent.

 

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, general fund transfers without voter approval, and improper use of accrued liability reserve funds.

 

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


Bay Shore Union Free School District


Internal Controls Over Selected Financial Operations


2008M-138


10th Judicial District


 


 

The District put far more money than was necessary into the Employee Benefit Accrued Liability Reserve (EBALR) fund. As of June 30, 2007, the EBALR fund had a balance of $20,487,930 while the District reported a liability for accrued compensated absences of only $10,503,284. The review revealed $4,331,035 of the $10,503,284 in stated liability were for costs that cannot legally be paid from this reserve fund. Instead, they have paid for compensated absences costs from the general fund. District officials said they would use the $14.3 million excess fund balance to pay for retiree health insurance benefits, which is not allowed by law. The District also failed to credit $410,000 in interest earned on EBALR fund monies to the reserve as required by law.

 

The District continued to use the same professionals year after year without competition, and officials paid ten vendors $979,681 for professional services without soliciting competitive proposals. In addition, board resolutions to hire three professionals who were paid $46,260 were insufficient because they did not indicate the services that the professionals expected to provide. It was also found that four professionals did not submit sufficiently itemized invoices to support payments, totaling $70,613. The District also entered into three purchase contracts and seven public works contracts without following competitive bidding requirements.

 

Finally, the District has not developed comprehensive policies to address unauthorized computer access or a disaster recovery plan.


12 recommendations


 

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

 


District officials generally agreed with the recommendations pertaining to post employment benefit liabilities, requests for proposals, and internal control weaknesses for competitive bidding. The District has agreed to implement corrective action shortly.


 


Brookfield


Central School District


Internal Controls Over Claims Auditing and Cash Disbursements


2008M-172


6th Judicial District


 


 

The board failed to establish appropriate controls over the audit of claims, and the board elected to retain its authority to audit District claims rather than to appoint a claims auditor. Instead of having the entire board audit claims, they appointed two members to audit, which is not permissible by Education Law. Claims paid with 113 manually prepared checks, totaling over $1.7 million, processed by the business manager/treasurer, showed no indication of the claims being audited by the board.

 

Further, 69 claims ($96,000) were paid by computer-printed checks listed on warrants that were not provided to the board for audit.

 

The business manager/treasurer performed incompatible duties, and there is no effective oversight of the business manager/treasurer, thereby increasing the risk of inappropriate payments.

 

There were also weaknesses in internal controls over the District’s process for classifying workers being enrolled in the Employee Retirement System.


5 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding claims auditing, cash disbursements, and the classification of employees.

 


District officials generally agreed with the recommendations pertaining to the audit of claims by the board, the duties of the business manager, and internal controls for the Employee Retirement System.

 


The District has agreed to initiate corrective action as soon as possible to address all recommendations.


 


Connetquot


Central School District


Internal Controls Over Financial Operations


2008M-115


10th Judicial District


 


 

Because the District did not properly establish policies to ensure that appropriate internal controls were in place over budget preparation, taxpayers have paid more than necessary, two teachers were overpaid, and equipment and data are at risk.

 

Budget appropriations have exceeded expenditures by $17.2 million over the past three years. The resulting increase in fund balance was partially offset by transfers totaling $8.7 million to an Employee Benefit Accrued Liability Reserve (EBALR) fund. The transfers, however, increased the balance in the EBALR fund to $4.1 million more than necessary to fund obligations. Transfers were made by the interim assistant superintendent for business in the amount of $405,085, prior to board approval.

 

The spouse of a teacher did not disclose her interest in a contract for the purchase of various supplies totaling $1,535 from the corporation for which she was the chief executive officer.

 

Two teachers were overpaid $8,377 because payments were not being independently reviewed.

 

Finally, adequate controls for information technology have not been properly implemented.

 


14 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial condition, interest in contracts, separation payments, and information technology.

 


The District disagreed with the findings concerning the budgeting practices of the District, and states that District residents did not pay more than necessary in tax payments.

 


District officials agreed with the recommendations pertaining to the financial condition and exceeding expenditures, the Employee Benefit Accrued Liability Reserve fund, the distribution of the code of ethics, employee benefits and salaries, and user access to the District’s network. They have agreed to initiate corrective action as soon as possible.


Crown Point


Central School District


Internal Controls Over Payroll and Information Technology


2008M-178


4th Judicial District


 


 

The District did not have adequately segregated duties among the employees involved in the payroll process. The District also did not maintain time records for regular hours worked by employees. Employee records were also not always complete, and as a result, the District incorrectly paid $863 to three employees for their lunch breaks.

 

The superintendent, treasurer, and deputy treasurer have computer access rights to all aspects of the computerized financial system, along with system administrator rights to the overall system.

 


4 recommendations


 

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

 


District officials generally agreed with the recommendations pertaining to the payroll segregation of duties, payroll timekeeping, and user rights to information technology. Corrective action will be implemented shortly, if it has not already been done so.


Ellicottville


Central School District


Internal Controls Over Selected Financial Operations


2008M-106


8th Judicial District


 


 

As of June 30, 2006, the unreserved and unappropriated general fund balance totaled $1.67 million, which represented 17 percent of the $9.7 million budgeted for the 2006-2007 fiscal year. This amount is in excess of the 2 percent limit that Real Property Tax Law authorized a school district to retain. The District also had reserves in amounts that are not necessary or reasonable.

 

Further, the payroll clerk could apply the treasurer’s electronic signature to District payroll checks because of the access rights she has been granted. The District also does not produce or obtain audit logs for management review. Finally, the District does not have a disaster recovery plan to protect equipment and data in case of an emergency.

 


9 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial condition, computerized data, and claims processing.

 


District officials have agreed with the recommendations pertaining to budget projections, revenues, and expenditures. Officials have also agreed with findings related to the District’s fund balance, as well as the implementation of an appropriate disaster recovery program. The District has discussed the recommendations, and is taking the necessary steps to develop a corrective action plan that will address the recommendations.


Farmingdale Union Free School District


Internal Controls Over Selected Financial Operations


2008M-57


10th Judicial District


 


 

The District’s Employee Benefit Accrued Liability Reserve (EBALR) fund has a balance of $11 million, which is more than twice the amount of the related liability.

 

The treasurer did not maintain adequate control over her signature disk to prevent unauthorized disbursement of District funds.

 

Thirty users had access to both enter and approve requisitions. Users shared passwords to gain access to functions they were restricted from under their own usernames.

 

A board member also did not disclose his interest in a telecommunications firm that has a contract with the District. Disclosure of his interest is required by General Municipal Law.

 


9 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial operations, computer data safeguards, and conflict of interest.

 


District officials generally agreed with the recommendations pertaining to EBALR transfer funds and investments, the safeguarding of the treasurer’s signature disk, and signing checks in the treasurer’s absence. The District has also agreed to the findings regarding computer access privileges, password protection, and disclosing interest in contracts. The District has agreed to implement corrective action to address all findings.


Honeoye


Central School District


Internal Controls Over Segregation of Duties and the Computerized Financial System


2008M-132


7th Judicial District


 


 

The District’s internal controls over the computerized business management system (system) were inadequate to protect District assets and data. Access authorizations were not properly restricted based on the job duties of employees, and the system does not generate basic reports necessary to monitor financial activity.

 


5 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding segregation of duties, and the computerized financial system.

 


District officials generally agreed with the recommendations pertaining to the protection of District assets and data, and the restriction of computer access. The District has indicated that they have added some levels of control to the duties of the payroll clerk and treasurer, and that they have updated the financial system, which now allows for better control over password assignments and user access.


Medina


Central School District


Internal Controls Over Selected Financial Operations


2008M-20


8th Judicial District


 


(Fiscal Concern)


 

The District did not formally advertise bids for seven purchases (totaling $246,000). There was no documentation to indicate that multiple vendors were considered, or to justify the failure of District officials to solicit competition.

 

The District’s transportation department did not have adequate procedures in place to monitor the use of the District’s eight fuel credit cards; and the District’s existing credit card policy does not address the use of fuel credit cards. Sixty-three unleaded fuel purchases (totaling $1,648) were listed on the monthly fuel card statements, but not documented in District records, and another 32 unleaded fuel purchases (totaling $1,473) were listed in District records, but the records did not  identify the vehicles for which the fuel was used. Another six purchases ($600) were insufficiently documented. Also, there was one fuel credit card discovered missing in October 2007, which showed seven fuel purchases ($200) with no supporting documentation.


4 recommendations


 

The report’s recommendations focused primarily on strengthening policies and procedures regarding purchasing and fuel credit cards.

 


The District has agreed with the recommendations pertaining to the revision of the purchasing policy, the revision of the credit card policy to address the use of fuel credit cards, and the practice of off-site purchasing. The District has agreed to initiate corrective action to address all recommendations.


 


New Hartford Central School District


Internal Controls Over Fuel Inventory


2008M-186


5th Judicial District


 


 

District officials have not developed written policies and procedures for controlling vehicle fuel inventories. The District also did not assign separate ID numbers for each vehicle and piece of equipment, and to each employee authorized to access fuel, and did not require employees to input odometer readings to track mileage.

 

Additionally, equipment, gas cans, and the driver’s education vehicle are not given their own unique ID numbers. Therefore, when fuel is pumped for these purposes, two miscellaneous codes are entered into the system instead of Distinct ID numbers.

 

District officials also did not regularly analyze fuel usage reports for reasonableness, and the District did not maintain perpetual inventory records showing fuel deliveries, usage, and inventory on hand.

 


4 recommendations


 

The report’s recommendations focused primarily on strengthening fuel inventory controls.

 


District officials have agreed with the recommendations pertaining to developing proper internal control policies for fuel inventory records, using new computer software to fullest capabilities to record odometer readings, maintenance of fuel consumption records, as well as perpetual inventory records. The District will implement corrective action shortly to address all recommendations.


Newark


Valley Central School District


Internal Controls Over Selected District Operations


2008M-144


6th Judicial District


 


 

The District either has not performed the required background checks, or officials did not have required supporting documentation on file to confirm that the background check was performed for three of the District’s independent contractors who had direct student contact. The District did not have documentation or updated clearance for an employee who also had direct contact with students.

 

The District had control weaknesses related to payroll processes.  However, the District has procured the services of BOCES and now has established adequate procedures for authorizing, recording, and processing payroll and benefit payments.

 

Further, the board’s appointment of a Broome-Tioga BOCES employee as a claims auditor, was not in accordance with Department regulations.

 


2 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding criminal background checks, payroll, and the claims auditor.

 


District officials have agreed to the recommendations pertaining to the maintenance of documentation for the required fingerprint-supported criminal background checks on all employees and contractors who have direct student contact. Additionally, the District has agreed to be vigilant to ensure that the Clearance Form is printed and placed in the file to prevent future problems. The District has also agreed to correct the segregation of duties within payroll, and appoint a claims auditor in accordance with SED regulations. The District has agreed to implement a corrective action plan to address all recommendations.


North Bellmore


Union Free School District  Internal Controls Over Selected Financial Operations


2008M-166


10th Judicial District


 


 

Duties in the payroll department were not adequately segregated. The employee responsible for processing payroll and maintaining leave accrual balances could also add employees to the payroll system, update employee data, such as, pay rates, and print and sign payroll checks.

 

The treasurer also does not retain control over her signature stamp or her electronic signature. The payroll clerk, accounts payable clerk, employee benefits clerk, and business office manager, all have access to the treasurer’s signature stamp and electronic signature.

 

The District’s two gasoline credit cards were kept in the custody of a local gas station rather than at the District. Credit card activity was reviewed, and there were instances of altered information on charge card slips and missing charge slips. There were also discrepancies in odometer readings and unrealistic gasoline usage.

 

Finally, there were no policies in place for monitoring remote access to the computerized accounting system.


7 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the segregation of payroll duties, the treasurer’s office, gasoline credit cards, and remote access for computers.

 


District officials generally agreed with the recommendations pertaining to incompatible payroll duties, control of the treasurer’s signature stamp, appointing a deputy treasurer, and updating the District’s credit card policies to require monitoring credit card use. The District had indicated that corrective action has been taken.


North Merrick


Union Free School District  Internal Controls Over Selected Financial Operations


2008M-63


10th Judicial District


 


 

District officials established an Employee Benefit Accrued Liability Reserve (EBALR) fund in April 2003 using $2.25 million of excess fund balance. There was no analysis performed to determine if this was a reasonable amount and, as a result, it is over funded by as much as $1.7 million. Since the fund was established, the District has only used $100,000 from the reserve as of May 2007.

 

The board also did not receive timely information for monitoring the District’s fiscal operations. This limits the board’s ability to monitor the budget and make decisions concerning budget status and transfers.

 

Further, the District did not solicit competition for professional services (totaling $1,133,035).

 

Finally, access to the computer system is not controlled, audit logs are not maintained, and servers are not secure.


13 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial operations, professional services, and information technology.

 


District officials agreed with the recommendations pertaining to the EBALR fund, the budget status and budget transfers, claims audit, IT policies, and the treasurer’s signature disk. They have agreed to implement corrective action to address each of the findings.


Peru


Central School District


Internal Controls Over Selected Financial Activities


2008M-122


4th Judicial District


 


 

District officials did not adequately segregate duties over payroll and provided minimal oversight. The District failed to update the business administrator’s employment contract, and inaccurately documented longevity pay for an employee. Further, no prior approval was given for overtime payments made to the payroll clerk and account clerk, totaling $10,545. Certain employees’ leave accruals did not conform to the benefits authorized in their contracts.

 

Account clerks affixed the treasurer’s signature to payroll and accounts payable checks without the treasurer’s oversight or review.  Cash receipts were also not properly accounted for, or deposited timely. District officials were unable to account for cash collected at three sporting events and were unable to identify the origin of $1,410 of cash on hand in District sales. Sports-admission receipts were deposited in the amount of $8,886 12 days or more from the date funds were received.

 

Additionally, none of the ten activity fund accounts reviewed maintained a student ledger during the 2006-2007 school year. Twenty disbursements totaling $10,431 lacked adequate documentation. Seventeen cash receipts were also deposited 12 days or more from the date funds were received.

 

Finally, controls were not sufficient to adequately safeguard the District’s IT system and the data that is stored in it.

 


36 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding payroll, cash receipts and disbursements, extra-classroom activity funds, and information technology.

 


District officials agreed with the recommendations pertaining to protocols for cell phones, competitive bidding, conference and workshop reimbursement, inventory control, mandatory training for board members on fiscal oversight matters, meals and refreshments, Medicaid reimbursement, multi-year finance planning and purchase orders, and other areas of fiscal accountability. The District has indicated that they have established and updated policies for all of the recommendations.


 


Pocantico


Hills Central School District


Internal Controls Over Selected Financial Operations


2008M-156


9th Judicial District


 


 

The purchasing agent approved purchases totaling $66,101 from three vendors that should have been but were not competitively bid. Furthermore, the purchasing agent did not monitor the purchase order procedures to ensure that District employees used the purchase order system correctly. As a result, ten purchases totaling $35,125 were made using confirming purchase orders, allowing staff to circumvent the purchase order system.

 

The claims auditor did not perform a complete audit of all District claims, did not verify the accuracy of the warrant, and did not always properly complete the certification section of the warrants.

 

Finally, there were significant weaknesses in the District’s controls relating to password security and the current financial software has minimum capability for generating audit logs.

 


12 recommendations


 

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

 


District officials have agreed with the recommendations and have indicated that the deficiencies within the claims auditing process will be addressed with the implementation of recently approved financial software, and that steps to improve the financial condition of the District have already been taken. Additionally, an additional business office position was created and filled, and the claims auditor was replaced. A comprehensive acceptable use policy will soon be completed.


Port Washington


Union Free School District  Internal Controls Over Selected Financial Operations


2008M-161


10th Judicial District


 


 

Three District employees (that were paid a combined total of $101,215 as vendors) did not disclose their interest in contracts with the District, as required by law.

 

There was also 981 gallons of gas that went unaccounted for, and fuel usage records were inaccurate and incomplete.

 

Finally, District controls over access privileges are not completely effective, and several individuals had user rights that were not in accordance with their job functions.

 


3 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding interest in contracts, fuel use and inventory, and computer access controls.

 


District officials generally agreed with the recommendations pertaining to the process for employees to disclose interest in contracts with the District, ensuring tighter controls over fuel use and inventory, and safeguarding computer access controls. They have agreed to initiate corrective action shortly.


Queensbury Union Free School District


Internal Controls Over Selected Financial Operations


2008M-174


4th Judicial District


 


 

The balance of the District’s Employee Benefit Accrued Liability Reserve (EBALR) fund totaled $7.6 million. As of June 30, 2007, the reserve balance was over ten times the amount of the District’s related liability for employee benefits chargeable to the reserve. The board and District officials raised new taxes at the same time that they were placing funds in the EBALR fund they did not need.

 

Twenty-two claims (totaling $128,411) did not meet criteria and should not have been paid prior to being audited. District officials also did not adhere to the board’s credit card policy.

 


4 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the EBALR fund and claims processing.

 


District officials agreed with the recommendations pertaining to claims processing, and indicated that they planned to take corrective action, if they have not already. They did not, however, agree with the recommendations pertaining to the  EBALR fund. The District states that they did not increase property taxes solely to build reserve funds, and instead, state that tax increases have been reasonable and in line with county and statewide averages.


Roosevelt


Union Free School District  Tentative Budget Plan for 2008-2009


2008M-235


10th Judicial District


 


(Fiscal Stress)


 

At the completion of the first quarter of the 2008-2009 fiscal year, the District's spending has generally been within the limits established by the board in its enacted budget. There were, however, several areas of concern which should be addressed by District officials. The District is not making adequate use of its encumbrance system to control expenditures. Many known expenditures have not been encumbered and some budgetary accounts have not been accurately established.

 


7 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding budgeting,

 


District officials agreed with the recommendations pertaining to budget transfers submitted to the board, the prevention of appropriation overexpenditures, BOCES estimated costs, leftover appropriations from grant programs, Academic Improvement Grant funds, and the Special Aid fund. The District has agreed to implement corrective action.


South


Lewis Central School District


Internal Controls Over District-Operated Vending Machine Receipts


2008M-212


5th Judicial District


 


 

Cash from vending machine sales are not counted (by the teacher’s aide) in the presence of another District employee, nor does another District employee periodically compare vending machine counter records with corresponding bank deposits. There is also no process in place to effectively monitor and reconcile vending machine sales to items stocked and disbursed. Finally, a duplicate receipt is not issued to the teacher’s aide by the food service helper.

 


3 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding District vending machine sales.

 


District officials agreed with the recommendations pertaining to the policies for counting the cash from vending machines, comparing meter readings to the cash removed and deposited, and policies for cash receipts. Corrective action has been implemented for each of the findings.


West


Canada Valley Central School District


  Internal Controls Over Selected Financial Activities


2008M-168


5th Judicial District


 


 

The financial duties of the business manager/treasurer are not properly segregated and compensating controls are not in place. The business manager/treasurer is not involved in the check signing process and does not exercise control over the use of his facsimile signature to sign checks.

 

Additionally, 15 out of 18 contracts tested that were not subject to competitive bidding, totaling $107,936, did not have documentation to show that competition was sought by obtaining written and/or verbal quotes, or requests for proposals.

 

Maintenance department records were compared to the transportation department’s records for November and December of 2007, and the amount of fuel pumped per the transportation department’s records exceeded the amount per the maintenance department’s records by 270 and 34 gallons for diesel and gasoline, respectively. This was not immediately recognized because there was no process in place to compare usage records or investigate differences.

 


7 recommendations


 

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash disbursements, purchasing, and fuel inventory.

 


District officials agreed with the recommendations pertaining to entering new employees, accounts payable, joining the central business office, and check signing. The District also agreed with the recommendations pertaining to procurement regulations, and discrepancies in fuel inventory records. The District has indicated that they will initiate corrective action shortly in order to address all concerns.


Attachment V

 


Regents Subcommittee on Audits


OSC Audit Trend – Payroll


December 2008


 


 



Background

 

Salaries and fringe benefits make up two of the largest expense categories of a district’s budget. As such, the payroll function should be clearly defined through policies and procedures and should be closely supervised. The payroll function should ensure that employees are being paid accurately based on time worked and according to employment contracts or other agreements. 

 



Common Findings

 

The audits conducted by the Office of the State Comptroller have identified various findings stemming from the payroll function. Some of the common findings in recent audits include:

 

  • Overpayments or unauthorized/ inappropriate payment for salary, health benefits, or leave accruals to former or current employees.  This could be due to vagueness of the contract language, error in calculation, or poor tracking and monitoring of leave accruals.

 

  • Misclassification of independent contractors as employees and their enrollment to the retirement system.

 

  • Lack of segregation of duties in the payroll process.

 

  • Lack of payroll policies and procedures.

 

Audit findings related to payroll are found in ten of the audits being presented this month.  Since May 2007, 168 findings of the 437 audits presented to the Subcommittee related to payroll.

 



Criteria



 

Section 1720 of the Education Law provides that payment for compensation for services of officers or employees engaged at agreed wages by the hour, day, week, month or year may be paid only upon presentation of a duly certified payroll.

 

Section 170.2 of the Regulations of the Commissioner of Education requires all payroll registers be certified by an official designated by the board of education.  A certified payroll is one that has been examined and approved by an administrator who certifies that the persons included in the payroll have regularly performed their duties in accordance with the terms of their employment by the board and that any additions to or deductions from normal salary payments have been made pursuant to the bylaws of the district and on the basis of personnel records that have been maintained by the district.

Section 3015 of Education Law expressly prohibits a board from paying employees in advance of service.

 

Although these legislations govern payroll issues, there is none that specifically addresses the more common findings mentioned above. 

 

An effective internal control system can provide reasonable assurance that payrolls are accurately calculated and school districts are safeguarded against fraud and abuse of compensated absences.  The payroll procedure involves the authorization of payroll additions and changes; maintenance of time-attendance and accrual records; payroll preparation; distribution of paychecks; and recording of data in appropriate budgetary and financial records.  Internal control elements include staff competence and integrity, independence of their assigned functions, and their understanding of the procedures.

 



Guidance and Training



 

There is limited guidance to the field in this area. Department staff discuss basics of payroll record requirements in training that is focused on the Treasurer’s duties. In addition, the New York State Association of School Business Officials conducts payroll training as part of its Summer Workshops. The contents of these are more focused on process and may not assist in avoidance of the payroll findings mentioned above.

 



Recommendation



 

Department staff develop an outline of a payroll training curriculum that will identify training topics that would assist in eliminating payroll audit findings. Department staff meet with the New York State School Boards Association, Council of New York State School Superintendents, and the New York State Association of School Business Officials to discuss the nature of the payroll findings and the training that is currently being offered to organizations representing school districts to discuss enhanced training in the payroll controls and processing.