Meeting of the Board of Regents | June 2008
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THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234 |
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Subcommittee on Audits
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Theresa E. Savo
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Board of Regents Oversight – Financial Accountability
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June 10, 2008
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Goal 5
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Executive Summary
Issues for Discussion
Two items are presented for discussion with the Members of the Subcommittee on Audits including:
- Audit Trend – Procurement (Attachment II)
- Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment III)
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
- Audit Trend – Procurement – 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 of the most common audit findings is in the area of procurement of goods and services including professional services. Department staff will describe the issue in more detail including possible policy changes. (Attachment II)
2. 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 III)
Reports are provided as follows:
Office of the State Comptroller
Beacon City School District
Campbell-Savona Central School District
Carthage Central School District
Chenango Valley Central School District
East Moriches Union Free School District
Fabius-Pompey Central School District
Forestville Central School District
Greater Amsterdam School District
Greece Central School District
Hamilton-Fulton-Montgomery BOCES
Island Trees Union Free School District
New York City Department of Education Student Participation in the
Supplemental Educational Services Program
Niagara Falls City School District
Pleasantville Union Free School District
Pyramids Child Development Center
Roosevelt Union Free School District
South Country Central School District
Troy Enlarged City School District
Western New York Maritime Charter School
Recommendation
For item one (Audit Trend), the advice and guidance of the Members of the Subcommittee is 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 May Meeting (Attachment I)
- Audit Trend – Procurement (Attachment II)
- Review of Audits Presented – Department’s Internal Audit Workgroup (Attachment III)
- Summary of Audit Findings (Attachment IV)
- Audit Report Abstracts (Attachment V)
REGENTS SUBCOMMITTEE ON AUDITS
MEETING ROADMAP
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Opening Remarks |
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Chair |
3 |
Review Agenda/Minutes (Attachment I) |
Approval |
Conway |
7 |
Audit Trend – Procurement (Attachment II) |
Information |
OAS Staff |
20 |
Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment III), Summary of Audit Findings (Attachment IV), and Audit Report Abstracts (Attachment V) |
Questions answered |
OSC and Department Audit Staff |
30 |
Your Subcommittee on Audits held its scheduled meeting on May 19, 2008.
Subcommittee Members in Attendance:
Geraldine D. Chapey, Chair
Regent Arnold B. Gardner
Other Members of the Board of Regents in Attendance:
Regent Roger B. Tilles
Discussion Items
- Regent Chapey recognized the efforts of the Office of Audit Services (OAS) in providing user-friendly information such as the charts and definitions in the monthly packets. Trends in audit findings are being tracked to target areas in need of additional attention and training.
- Department representatives meet with the New York State Association of School Business Officials (NYSASBO) regularly. The charts and trend information has been shared with NYSASBO and the information has been posted on the OAS web site for their convenience. OAS will be participating in six NYSASBO- sponsored meetings across the state to further share this information.
- The Internal Audit Workgroup identified particular audits for follow-up, five of the audits and the specific findings were discussed:
- Chappaqua Central School District – procurement and fingerprint-supported criminal background checks on contractors.
- Cortland City School District – procurement and claims auditing.
- Eastern Suffolk BOCES – IT processing on two third-party maintained web-based student management systems.
- Tully Central School District – conflict of interest.
- Valhalla Union Free School District – payments made against a grant provided by the Town of Greenburgh.
- The minutes of the April meeting were not accepted because there was not a quorum present at the meeting.
- The audit staff’s presentation on procurement will be deferred to next month’s meeting.
- Completed audits by the Office of the State Comptroller presented this month:
Amber Charter School
Brooklyn Charter School
Canaseraga Central School District
Chappaqua Central School District
Community Partnership Charter School
Cortland City School District
Duanesburg Central School District
East Syracuse-Minoa Central School District
Eastern Suffolk BOCES
Frankfort-Schuyler Central School District
Gloversville Enlarged School District
Hamburg Central School District
Hastings-on-Hudson Union Free School District
Herkimer-Fulton-Hamilton-Otsego BOCES
Kipp Academy Charter School
Liberty Central School District
Little Flower Union Free School District
Merrick Academy Charter School
Monroe-Woodbury Central School District
Montauk Union Free School District
New York State Education Department School District Compliance with Rescue
Act Provisions for Building Assessment and Planning
Our World Neighborhood Charter School
Patchogue-Medford Union Free School District
Plainview-Old Bethpage Central School District
Randolph Central School District
St. Regis Falls Central School District
Salamanca City School District
Schenectady City School district
Sodus Central School District
Tuckahoe Common School District
Tully Central School District
Valhalla Union Free School District
Wappingers Central School District
Attachment II
Regents Subcommittee on Audits
OSC Audit Trend – Procurement
June 2008
Background
School districts and BOCES purchase thousands of products and services each year. A district’s purchasing process should ensure maximum value is received for each dollar spent on equipment, supplies, and contracted services. Policy and procedures as well as other internal controls should provide assurance that purchases result in securing goods and services in the right quantity, at the right time, and for the right price, and should ensure that purchases are made in compliance with law and district policy.
Common Findings
The audits conducted by the Office of the State Comptroller (OSC) have identified numerous findings related to procurement. More specifically, the audits have found:
- Many districts have failed to competitively bid for the procurement of goods and services even though it is required.
- Some contracts for goods or services were not provided to the boards of education for review and approval.
- Many boards of education have not adopted comprehensive written policies and procedures detailing the key elements of the procurement process.
- In some cases, there is no signed contract documenting the expected outcomes of a service engagement.
- Internal controls are not always in place to ensure appropriate procurement practices are followed.
Audit findings related to procurement were found in 9 of the 32 OSC audits presented to the Regents Subcommittee on Audits in May and in 2 of the audits being presented this month. Since May 2007, 108 of the 318 OSC audits presented to the Subcommittee contained findings related to procurement.
Criteria
The procurement process in municipalities, including school districts, is regulated by the requirement of General Municipal Law (GML). Section 103 of GML establishes the requirement that all contracts for public work involving an expenditure of more than twenty thousand dollars and all purchase contracts involving an expenditure of more than ten thousand dollars, shall be competitively bid. GML also requires in section 104-b that goods and services which are not required by law to be procured by competitive bidding must be procured in a manner so as to assure the prudent and economical use of public moneys in the best interests of the taxpayers of the political subdivision or district, to facilitate the acquisition of goods and services of maximum quality at the lowest possible cost under the circumstances. GML 104-b requires the development of policies and procedures to guide the decision making when competitive bidding is not required. Education Law was amended in 2005 to require school districts to use a Request for Proposal process in procuring accounting services.
Guidance and Training
There is extensive guidance available to school districts and BOCES in the area of procurement. The Department has a webpage devoted to procurement topics which includes a Purchasing Handbook. The Office of the State Comptroller’s Local Government Management Guide provides guidance on procurement in the area of policy development, processes and internal controls. In addition, training is provided by the New York State Association of School Business Officials.
Recommendations
Sufficient guidance is available for districts and BOCES to guide the procurement process. The following possible actions have been considered to address the findings in the area of procurement:
- expanded training and outreach;
- comprehensive and concrete follow-up with the districts including on-site verification of corrective actions; and
- consideration of policy changes in the area of procurement that would enhance accountability
Attachment III
Regents Subcommittee on Audits
June 2008
Review of Audits Presented
Department’s Internal Audit Workgroup
Newly Presented Audits
We reviewed 19 audits that are being presented to the Subcommittee this month. The audits were of 15 school districts, 1 BOCES, 1 charter school, 1 preschool special education provider, and 1 New York City Department of Education program audit. The audits were all issued by the Office of the State Comptroller (OSC) and the findings were in the areas of payroll, claims processing, cash, segregation of duties, information technology, procurement, financial reporting, and budgeting.
The Department has issued letters to the auditees, reminding them of the requirement to submit corrective action plans to the Department within 90 days of their receipt of the audit report.
The Department’s Internal Audit Workgroup identified three school district audits, one program operated by the New York City Department of Education audit, one preschool special education provider audit and one charter school audit for further review and follow-up.
- GreeceCentral School District – The Capital Improvement Project exceeded authorized funding by $2.5 million. Additional expenses, including a $1 million pay increase to the construction manager that was not board-approved, were paid from the general fund. District failed to bill Medicaid for all reimbursements it is entitled to. Result of sampling showed at least $110,000 of Medicaid services was not billed. Unbilled services could be up to $2.2 million which could cost the District up to $560,000 in lost revenue.
- RooseveltUnion Free School District – The District adopted a 2007-08 general fund budget of $63.7 million. If the District maintains current revenue and expenditure trends, it could potentially have an operating surplus for 2007-08, of approximately $4.8 million. School lunch fund shows a potential operating deficit of approximately $130,000 which will further increase the existing deficit in the school lunch fund to $704,000.
- SouthCountry Central School District – Debt service payments of $500,000 were excluded from the budget and about $690,000 in health, dental benefits and energy costs may have been underestimated. Contributions to the retirement system used incorrect percentages which may result in overestimated costs of more than $1 million in 2008-09. Further, personal service costs may be over-budgeted by almost $2.7 million.
- New York CityDepartment of Education – The NYC Department of Education (DOE) and the schools are offering the Supplemental Educational Services (SES) program in accordance with requirements, but can be more proactive and effective in promoting and encouraging enrollment. SES enrollment rates were analyzed and it was found that the rates varied considerably from school to school, ranging from 0 percent enrollment, to 99.8 percent. Three of the 45 schools had enrollment rates of at least 90 percent, while 15 of the schools had enrollment rates of 10 percent or less. Additionally, some of the students enrolled in the program may not have been eligible, and $14.1 million was spent in providing tutoring and remediation programs for the potentially ineligible students.
- PyramidsChild Developmental Center – There were material deficiencies in the Consolidated Fiscal Report (CFR) submitted by Pyramids. As a result, it is proposed that adjustments be made in the four educational programs reviewed, in order to reduce the total allowable costs by $239,889. These adjustments pertained to the Executive Director’s compensation and accruals for staff bonuses. Other adjustments included depreciation, amortization, accounting and legal fees, and penalties. Disallowances totaling $113,511 are proposed for the 9100 program, $32,676 for the 9101 program, $20,255 for the 9135 program, and $73,447 for the 9160 program. These disallowances will likely cause the State Education Department (SED) to re-compute the tuition rates for these programs. The Pyramids’ Board of Directors is also insufficiently independent. Four of the board’s five members had a direct relationship with the school. Three of the four members in question were employees of Pyramids.
- WesternNew York Maritime Charter School – The school employed an individual with a criminal record who was eventually terminated after the school’s accounting firm notified the school of the impropriety. Former school officials and employees exploited internal control weaknesses which resulted in payment for goods and services amounting to more than $95,000 that were not received or misappropriated after delivery.
Follow-up Actions
- Office of Audit Services (OAS) staff will follow-up with the Department’s Charter School Office on the Western New York Maritime Charter School audit. In addition, this audit will be referred to the Office of School Personnel Review and Accountability (OSPRA).
- Staff from the Office of Education - P-16 will follow-up on issues related to the Greece Central School District.
- As always, the corrective action plans will be reviewed for appropriate action. OAS staff will report back to the Subcommittee.
- Since the last meeting, four letters have been sent requesting additional information related to the corrective action plans submitted by school districts.
Audit |
Procurement |
Claims Processing |
Payroll |
Cash |
Financial Reporting |
Information Technology |
Segregation of Duties |
Budgeting |
Finger-printing |
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Beacon City School District |
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Campbell-Savona Central School District |
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Carthage Central School District |
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Chenango Valley Central School District |
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East Moriches Union Free School District |
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Fabius-Pompey Central School District |
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Forestville Central School District |
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Greater Amsterdam City School District |
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*Greece Central School District (footnote 1) |
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*Hamilton-Fulton-Montgomery BOCES (footnote 2) |
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Island Trees Union Free School District |
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*New York City Department of Education Student Participation in the Supplemental Educational Services Program(footnote 3) |
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Audit |
Procurement |
Claims Processing |
Payroll |
Cash |
Financial Reporting |
Information Technology |
Segregation of Duties |
Budgeting |
Finger-Printing |
*Niagara Falls City School District (footnote 2) |
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Pleasantville Union Free School District |
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*Pyramids Child Development Center (footnote 4) |
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Roosevelt Union Free School District |
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South Country Central School District |
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Troy Enlarged City School District |
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Western New York Maritime Charter School |
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*Other – (1) This audit included findings related to Medicaid reimbursements and a capital improvement.
(2) These audits are related to eligibility for membership in the New York State Employee Retirement System.
(3) This audit examined the New York City Board of Education provision of Supplemental Education Services.
(4) This audit examined the reliability of financial information reported for the operation of a special education program.
Summary of Current and Prior Audit Findings
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May 2007 – April 2008 |
May 2008 |
June 2008 |
Running Total |
Procurement |
97 |
9 |
2 |
108 |
Capital Assets |
18 |
0 |
0 |
18 |
Claims Processing |
108 |
9 |
3 |
120 |
Payroll |
107 |
13 |
2 |
122 |
Cash |
80 |
13 |
3 |
96 |
Financial Reporting |
64 |
5 |
1 |
70 |
Information Technology |
100 |
8 |
1 |
109 |
Capital Construction |
5 |
0 |
0 |
5 |
Extraclassroom Activity Fund |
7 |
0 |
0 |
7 |
Segregation of Duties |
47 |
4 |
3 |
54 |
Budgeting |
9 |
1 |
6 |
16 |
Conflict of Interest |
10 |
2 |
0 |
12 |
Fingerprinting |
0 |
5 |
1 |
6 |
Other |
7 |
2 |
5 |
14 |
Total |
659 |
71 |
27 |
757 |
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.
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, and general fund transfers without voter approval.
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, make payment or audit bills or claims of the contract.
Fingerprinting – includes failure to fully comply with fingerprinting requirements.
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The significant revenue and expenditure projections in the proposed budget are reasonable. However, the District projects that its fund balance at June 30, 2008, will be approximately $4.26 million, which is more than the legal limit. The District’s 2008-09 proposed budget includes the appropriation of $1 million of projected fund balance to help finance 2008-09 operations. The appropriation of this amount of fund balance would still result in a fund balance that exceeds the 4 percent limit. |
It is recommended that the District take appropriate action to ensure that unappropriated fund balance does not exceed the 4 percent limit. A corrective action plan is required within 90 days to address exceeding the 4 percent limit. |
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The estimated budgeted revenues and appropriations are reasonable. Additionally, District officials have taken the appropriate action to address the recommendations contained in the May 2007 budget review audit report.
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There were no recommendations.
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The District has not established adequate internal controls over cafeteria and vending machine cash receipts. The duties of cash handling, recordkeeping, and cash reconciliations are not properly segregated, independent reconciliations of cash sales to deposits are not being performed and there is a lack of supervisory review of the key cash receipt duties being performed.
Daily sales reports from the computer system are not compared with the money deposited by the elementary school head cashiers to verify that all moneys collected were deposited in the bank. Additionally, there is no supervision when the secretary counts the money, nor does she issue a receipt to the cashiers to document the transfer of funds. No one outside of the cash handling process confirms that the secretary deposited all the funds she received from the cafeterias.
Funds received from the vending machines are also not counted under supervision, nor does the secretary issue a receipt to the cashier remitting her the money. The food service manager claimed that she was not aware of the risk associated with her secretary performing these duties without supervisory review.
During the report period, the District strengthened internal controls by requiring the elementary school head cashiers to forward a copy of their daily deposit slips to the secretary so the secretary can reconcile deposits with the daily sales reports. The head cashiers at the middle and high school also began issuing receipts to the food service secretary showing the amount of money each remitted to her for deposit. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding cafeteria receipts.
District officials accepted the recommendations pertaining to the adequate segregation of cash handling duties, the comparison of daily sales reports by an individual independent of cash collection, issuing and retaining duplicate receipts, and counting money from vendors prior to combining sales from the machines for deposit. Officials have agreed to initiate corrective action shortly if they have not already done so.
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The significant revenue and expenditure estimates in the proposed budget are reasonable. However, District officials did not submit a proposed school lunch fund budget for the 2008-09 fiscal year.
The school lunch fund had deficit fund balances for the last six years. A comparison of fund balances over this period indicate that the fund balance deficit was approximately $95,000 on June 20, 2002, and then decreased slightly to a deficit of $74,000, but then increased significantly to more than $125,000. The superintendent stated that a budget for the school lunch fund will be prepared in early May 2008. |
It is recommended that District officials prepare and adopt a realistic school lunch fund budget immediately, and closely monitor actual results of operations throughout the 2008-09 fiscal year.
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The significant revenue and expenditure projections were reasonable. However, based on the calculation of the District’s fund balance, it is believed that revenues could exceed expenditures in the current year by as much as $900,000, which would increase the District’s unreserved fund balance to approximately $1 million by June 30, 2008. Most of the operating surplus is due to a $600,000 grant in aid which is non-recurring (one-shot) revenue that will not necessarily be received in the following year. The additional surplus of $300,000 is mostly due to the current year’s tuition costs being less than the amount budgeted. If the District were to continue with its current plans to use $550,000 in fund balance to help finance the 2008-09 budget, the unreserved fund balance as of June 30, 2008, would be about $450,000.
Lastly, the board needs to consider its appropriations for energy and utilities, BOCES services, and health insurance. |
It is recommended that District officials closely monitor the use of the fund balance to ensure that action is taken, if necessary, to identify other funding sources that can be used if the fund balance is no longer available to fund District operations. Additionally, a corrective action plan is required for appropriations for energy and utilities, BOCES services, and health insurance.
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The tentative budget for the District and the budgeted estimated revenues and appropriations appear reasonable. |
There are no recommendations.
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The treasurer executes wire transfers without the approval of another individual, and the bank does not provide paper confirmation of wire transfer transactions to another District official or employee. Board members and the superintendent do not receive independent accounting/reporting that would provide them with a reliable means of monitoring the treasurer’s wire transfer activity. The treasurer also maintains the accounting records and performs monthly reconciliations of the bank statement balances to the accounting records, which results in a weakness in internal controls because these key duties are being performed by one individual with little or no oversight.
The new claims auditor was not provided with a written description of job duties which does not ensure there is an understanding of the position. Additionally, the claims auditor does not sign any of the claims to indicate that they were approved for payment.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding internal controls over cash disbursements.
District officials have indicated that they agreed with the recommendations pertaining to wire transfers, reassigning the treasurer’s current duties, providing a written job description to the claims auditor, and implementing a process that requires the claims auditor to sign each claim. Officials stated that they have already begun taking corrective action to address the concerns. |
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The significant revenue and expenditure projections in the proposed budget are reasonable. Additionally, District officials have taken the appropriate action to address the recommendations contained in the May 2007 budget review audit report.
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There were no recommendations.
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The previous board failed to develop sound policies to manage District resources and did not properly manage District resources and there was a poor control environment in the District.
The Capital Improvement Project (CIP) has exceeded authorized funding by $2.5 million. Additional expenses were paid from the general fund and included a pay increase of about $1 million for the construction manager that was not approved by the board. The board stated that in the CIP’s first three years, it gave a “blank check” to the superintendent, who was able to use his discretion in authorizing purchases, including assets totaling $267,000 that are currently idle. Previously, a clerk hired by the District to monitor CIP progress quit his position in August 2004, because he was not given the authority and information needed to properly oversee the project. Lastly, 30 out of the 70 claims that were tested, worth $1.7 million, were paid without the architect’s certification that services billed were performed.
Officials did not claim all Medicaid reimbursements that they are entitled to. A review of a sample of claims showed the District failed to bill at least $110,000 of Medicaid services. It is estimated that the District failed to bill at least $2.2 million in eligible Medicaid services, costing the District about $560,000 in lost revenue.
Nineteen employees who left District employment, received a total of $175,000 for vacation benefit payments they may not have been entitled to. Also, a number of administrators were paid a total of $127,000 in additional compensation or benefits without board authorization. Officials were paid over $300,000 in extra compensation because the board did not ensure contracts clearly identified benefits. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding control environment, the Capital Improvement Project, Medicaid reimbursement, compensation, and information technology.
The current District officials and the new board generally agreed with the recommendations pertaining to control environment, strengthening board understanding of the District business, the code of conduct for assessing financial reporting culture, a whistleblower program, following up on audit reports, and planning for the Capital Improvement Project. Additionally, officials agreed with the recommendations regarding the purchase of idle assets, CIP expenditures, CIP General Fund, project status, depletion of CIP funds, payments to the construction manager, change orders, and internal claims, and audit function.
Officials generally disagreed with the recommendation involving payments being made without ensuring the work was performed. |
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Tests of enrollment at BOCES revealed that five attorneys, all partners in a private law firm, were improperly enrolled in the New York State and Local Employees’ Retirement System (ERS) during the 2006-07 fiscal year because they were contractors, rather than public employees. As a result, taxpayers have subsidized payments to ERS on behalf of independent contractors who are not entitled to pension benefits. These attorneys, who were on the BOCES payroll as full-time employees, worked substantially less than the 1,157 days that the BOCES reported to ERS. The five partners actually worked 196 days, for which they were paid a total of $234,000.
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BOCES officials generally agreed with the recommendations. They have since suspended the pay of these attorneys, and the board adopted a resolution in March, ending the attorneys’ services for the 2007-08 fiscal year. They have also indicated that they plan to strengthen controls over worker classification processes.
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The District did not adequately segregate duties over its financial operations. The District had given almost all control of its fiscal activities to the Assistant Superintendent for Finance and Administration without providing appropriate supervision for his work. The assistant superintendent oversees the business office and serves as the deputy treasurer and as the District’s purchasing agent.
The District’s claims auditing process is not well designed or functioning properly. No documentation existed to verify that 613 claims, paid by the District, were certified for payment by the claims auditor. Forty claims (totaling $157,560) were reviewed and it was found that the treasurer paid 28 of the claims totaling $133,211 before they were audited and approved by the claims auditor. Twenty travel reimbursements were also reviewed (totaling $8,918) and 19 of the claims ($8,599) did not have adequate approval documentation attached to the claims, as required.
Lastly, the District’s procurement policy did not require the use of an RFP process to procure professional services. The District did not solicit RFP’s when hiring four out of six providers for services totaling $449,497. Two of the four providers did not have a written contract or agreement with the District. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding business office procedures, claims processing, and professional service providers.
District officials generally accepted the recommendations pertaining to certifications being retained on file, hiring a purchasing agent, travel and conference expenses, and contracts for professional service providers. They have agreed to initiate corrective action, if they have not already done so.
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The NYC Department of Education (DOE) and the schools are offering the Supplemental Educational Services (SES) program in accordance with requirements, but can be more proactive and effective in promoting and encouraging enrollment.
SES are federally funded tutoring and remediation programs that are provided to students before or after school, or on weekends. The services are arranged by local schools and provided by specially approved contractors. The services must be offered to all eligible low-income students at schools where a significant portion of the student population is not meeting certain academic performance goals.
SES enrollment rates were analyzed and it was found that the rates varied considerably from school to school, ranging from 0 percent enrollment, to 99.8 percent. Three of the 45 schools had enrollment rates of at least 90 percent, while 15 of the schools had enrollment rates of 10 percent or less.
Additionally, some of the students enrolled in the program may not have been eligible, and $14.1 million was spent in providing tutoring and remediation programs for the potentially ineligible students.
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District officials agreed with the majority of the recommendations, however, they did disagree with 3 of the 12.
Officials disagreed with the recommendations pertaining to using NCLB funds to transport students to the program, the non-compliance with federal guidelines, and the requirement for the schools to provide the Office of Special Projects with the proper information.
District officials agreed with the recommendations pertaining to using less traditional forms of communication to promote SES, developing a system to formally evaluate the effectiveness of the program, having schools reach out to parents to discuss the program, as well as encourage those eligible to enroll their children. Additional recommendations which were agreed upon included strengthen overall communication among all parties involved in the SES program, revising the manual, and developing controls to prevent ineligible enrollments.
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An attorney was improperly enrolled in the Employee Retirement System (ERS) during the 2006-07 fiscal year, because she was a contractor and not a valid public employee. The attorney was paid $42,827 in salary, and received $5,817 in health benefits. This attorney did not have a standard work day, hand in time sheets, and the District did not oversee any of her work. In fact, she works full-time from her own office at her father’s law firm.
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It is recommended that District officials formally notify ERS that prior District-related service credit for this attorney be removed from ERS, and that officials strengthen internal controls over the classification of workers.
District officials have indicated that they accept the recommendations and will correct the weaknesses identified in controls over the classification process, as well as make the corrections needed to legitimize the attorney’s employee status. |
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Thirty-three warrants were reviewed, and it was found that the claims auditor had not audited eight federal fund warrants for claims totaling $289,700. The District was missing 8 general fund warrants for claims totaling $3.2 million, and the claims auditor did not sign one general fund warrant for claims totaling $477,000. The District was missing warrants for claims totaling $672,700.
The claims auditor stated that she did not receive any written procedures or a written job description relating to her duties. The claims auditor also does not directly report to the board and does not consult with the board regarding concerns or questions about claims. The claims auditor is also a secretary in the middle school, and as part of her secretarial duties she was initiating, receiving, and signing for purchases, which created an environment where she audited her own work.
Furthermore, the claims auditor was not given a written job description nor the proper guidance to properly fulfill her job duties. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding the claims auditor.
District officials generally accepted the recommendations pertaining to warrants for both the federal and general fund, the claims auditor’s job description, the claims audit process, and proper documentation.
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There were material deficiencies in the Consolidated Fiscal Report (CFR) submitted by Pyramids. As a result, it is proposed that adjustments be made in the four educational programs reviewed, in order to reduce the total allowable costs by $239,889. These adjustments pertained to the executive director’s compensation and accruals for staff bonuses. Other adjustments included depreciation, amortization, accounting and legal fees, and penalties. Disallowances totaling $113,511 are proposed for the 9100 programs, $32,676 for the 9101 program, $20,255 for the 9135 program, and $73,447 for the 9160 program. These disallowances will likely cause the State Education Department (SED) to re-compute the tuition rates for these programs.
The Pyramids’ Board of Directors is also insufficiently independent. Four of the board’s five members had a direct relationship with the school. Three of the four members in question were employees of Pyramids.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding the CFR.
Three out of eight of the recommendations were addressed to SED, and pertained to making adjustments to the costs reported on Pyramids’ CFR, including recovering overpayments, assessing the ability of Pyramids’ officials and the CPA firm to prepare the CFR properly, and requiring Pyramids to establish an independent board of directors. SED officials agreed with the three recommendations and indicated that they will take corrective action.
The other five recommendations were addressed to Pyramids to help improve controls over its CFR preparation and certain related financial and management practices. They did not specifically agree or disagree with the recommendations, and they disagreed with most of the proposed disallowances contained in the report. Officials did indicate, however, that they would seek to hire a qualified person to fill the position of controller to help ensure that Pyramids’ CFR complies with the manual. |
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The District adopted a 2007-08 general fund budget of $63.7 million. If the District maintains current revenue and expenditure trends, it could potentially have an operating surplus for 2007-08, of approximately $4.8 million.
The District could realize $2.35 million more in State aid than was originally estimated in the 2007-08 budget, and $850,000 more in other revenues compared to amounts originally budgeted. A deficit fund balance of $3.1 million would still remain on June 30, 2008.
Additionally, the infusion of the additional $14 million in State aid recently authorized by the State Legislature, will increase the District’s potential general fund operating surplus on June 30, 2008 from $4.8 million to $18.8 million.
Lastly, the school lunch fund shows a potential operating deficit of approximately $130,000 which would increase the existing accumulated deficit to $704,000 on June 30, 2008.
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District officials should maintain the same rate of spending and not commit resources for purposes not otherwise included in the adopted budget, closely review revenues budged from federal sources, and monitor special education appropriations. Additionally, officials should correct the imbalance in revenues and appropriations in the school lunch fund budget and present the corrected budget to the board. Revenues generated by the school lunch fund should be reviewed, an appropriation in the general fund budget should be established in order to subsidize the school lunch fund, as well as transfer general fund appropriations to the lunch fund. |
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Almost $1.2 million in costs were not included in the budget or were underestimated, and $3.7 million in other costs were overestimated or over-budgeted. Debt principal repayments totaling $500,000 were excluded from the budget, health and dental benefit costs may be underestimated by about $390,000, and energy costs could be underestimated by approximately $300,000.
Additionally, estimates for the District’s contributions to the retirement systems were calculated using incorrect percentages, resulting in the District’s estimates being more than $1 million greater than what the District will be required to pay in 2008-09. Furthermore, personal service costs are likely over-budgeted by almost $2.7 million.
There were significant deficiencies in the District’s accounting system resulting in the unavailability of timely and accurate reports of the District’s financial status. District officials indicated that the reason records are not up-to-date is that the District has been in a period of transition following the resignation of the former District treasurer in 2007. |
It is recommended that the District adjust the tentative budget to include the issues mentioned.
The board should review the personal service costs in the 2008-09 budget, and revise the budget format to include actual revenues and expenditures for the last completed fiscal year, the current year to date, as well as the current fiscal year as amended to date. |
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The significant revenue and expenditure projections in the 2008-09 tentative budget are reasonable. However, the tentative budget for 2008-09 included the appropriation of $6,125,000 of fund balance to help finance 2008-09 operations. After the appropriation of this amount of fund balance, the amount remaining would still result in an unreserved and unappropriated fund balance of $5.6 million. This amount exceeds the 4 percent statutory limit set for districts for the 2008-09 fiscal year by $1.9 million. Officials are facing the same legal limit issue in this year’s budget as with the 2007-08 budget, even though the statutory limit has been increased.
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It is recommended that District officials keep an amount of unreserved and unappropriated fund balance that complies with the legal limit, but that they do so in a fiscally responsible manner that does not jeopardize the District’s future financial stability. Officials should also monitor the District’s year end fund balance and develop plans for reserving fund balance that exceeds the 4 percent limitation. Officials could also consider reducing property taxes in a measured way to return some of the excess fund balance to residents. |
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The board failed to establish adequate controls to ensure that School assets were properly safeguarded, and the lack of adequate monitoring of fingerprinting requirments resulted in the employment of an individual with a criminal record, the misappropriation of School funds, and the awarding of contracts to employees where it is unclear whether the Shool received value for the money spent. However, once the board was notified of the improprieties by their accounting firm, they terminated the employment of those who violated School policies, and referred the matter to law enforcement agencies.
Former School officials and employees took advantage of weaknesses in the internal control system, and manipulated the purchasing system. As a result, the School paid for goods and services totaling more than $95,000 that were either not delivered to the School, or were misappropriated after delivery.
Additionally, the board does not review the claims paid by the School, and has not established an independent claims audit function. Of 106 judgmentally selected claims totaling $296,601 that were paid between July 1, 2005 and August 28, 2007, there were deficiencies with 31 of the claims, totaling $122,381. The claims lacked proper approvals, supporting documentation, itemization of expenses, and/or indication that goods or services were received. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight, claims processing and related purchasing activities.
District officials generally accepted the recommendations regarding employee background checks, original invoices, purchase approval, employees as contractors, monitoring hiring practices, and ensuring that contracts are properly approved. The board has also agreed to adopt a comprehensive purchasing policy, appoint a claims auditor and adopt a claims audit policy.
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