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Meeting of the Board of Regents | June 2009

Tuesday, June 23, 2009 - 11:15pm

Report of






The Board of Regents

June 23, 2009


Regent Geraldine Chapey, Chair of the Regents Subcommittee on Audits submitted the following report.


Your Regents Subcommittee on Audits had its scheduled meeting on June 23, 2009. Members of the Subcommittee in attendance were Regent Chapey and Vice Chancellor Cofield. Regents Bendit, Cea, Norwood, and Phillips also attended.


Items for Discussion


Chair’s Remarks:  Regent Chapey welcomed everyone and opened the meeting by describing the significance of yesterday’s joint meeting of the Subcommittee’s on Audit and State Aid. The meeting was significant in that it resulted in a more comprehensive study of information initially presented in the Audit Subcommittee. The presentation was valuable in assessing the extent of the linkage between fiscal and academic performance and generated discussion among the Regents in attendance.


Follow-up on the Audits


Staff briefed the Subcommittee on legislation that was passed related to school districts’ use of Employee Benefit Accrued Liability Reserve (EBALR). Legislation has been enacted which directs the Comptroller’s Office to review all of the EBALR reserves by the end of the 2011-12 school year and determine the amount of funds in the reserve, the amount of the district’s liability, and if it exists, the amount of reserve funds in excess of the liability.


Office of Audit Services 2009-2011 Audit Plan


Staff briefed the Subcommittee on proposed topics for inclusion in the Audit Plan which will guide the work of the audit unit from July 1, 2009 through June 30, 2011. We were briefed on each of the proposed topics. The proposed topics include both external and internal audits. The proposed topics for external audits include: data related to the generation of school district State Aid; data related to documentation and calculation of district cohort; dropout and graduation rates; the use of IDEA funds by the New York City Department of Education; and use of Local Government Management Funds. Proposed internal audits include: Department procurement practices, the internal control review and assessment process, sub-recipient monitoring as it related to grants administration, the Section 211 waiver process, and methods used to allocate Information Technology costs across the Department.  In addition, the Department is committed to committing some audit resources to both Department processes for administering ARRA funds and the use of the funds and reliability of data at the sub- recipient level.


During the presentation the Regents discussed the various types of audits and the extent of audit coverage provided by the Department’s Office of Audit Services, the Office of the State Comptroller, and others. Staff will brief the Subcommittee on those issues at the next meeting.




Presentation of Audits


Thirty-six audits were presented to the Subcommittee this month. They were all reviewed by the Department’s Internal Audit Workgroup and 11 were identified for further review and follow-up. The findings were in the areas of procurement, budgeting, financial reporting, payroll, information technology, claims processing, cash, reserve funds, fuel inventories, and equipment inventories.


I have attached the results of the full Review of Audits presented by the Department’s Internal Audit Workgroup for your information.


Regents Subcommittee on Audits

June 2009

Review of Audits Presented

Department’s Internal Audit Workgroup



Newly Presented Audits


We reviewed 36 audits that are being presented to the Subcommittee this month.  There were three individual audits issued, one of a Department function, one of an Early Childhood Direction Center and one of a State Supported School. Eighteen of the audits were of school districts, twelve were of school district budget reviews, and three were of BOCES. 


Two of the audits were issued by the Office of Audit Services (OAS) and the rest were by the Office of the State Comptroller (OSC).  The findings were in the areas of procurement, budgeting, financial reporting, payroll, information technology, claims processing, cash, and other, such as reserve funds, fuel inventories and equipment inventory.


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 11 of the audits for further review and follow-up.


  • State Education Department - Follow-up Report on Assessment of Selected Financial Management Practices


Summary of Audit


This was a follow-up on a previous audit entitled Assessment of Selected Financial Management Practices (Report 2006-S-99). That audit examined certain aspects of the Department’s property control, payment, and payroll systems. The original audit found weaknesses in control over the Department’s equipment inventory, the timeliness of payments to certain vendors, and the process for updating payroll information. The objective of the follow-up report was to assess the extent of implementation of the recommendations included in the initial report. The original audit contained 17 recommendations for strengthening controls in these areas.


The Department has implemented, or partially implemented, all recommendations, except for the following:

  • To perform annual physical inventories of equipment.  The Department indicates that they plan to perform an independent physical inventory of all equipment in the Albany area by this summer to address the annual physical inventory recommendation. 


  • To recover the location pay overpayment from the employee.  The Comptroller’s Office advised SED that the overpayment of the location differential was not recoverable.


Follow-up Action


The Office of Audit Services will continue to follow-up until the recommendations are fully implemented or no longer applicable.


  • Findings on Fund Balance and Reserves - Churchville-Chili, Fillmore, Lancaster,  Niagara-Wheatfield, Phelps-Clifton Springs, Spencerport


Summary of Audit


The findings generally indicate that the districts routinely overestimated their expenditures and underestimated their revenue resulting in the accumulation of operating surpluses over the years and unreserved fund balances exceeding the limit allowed by law.  These surpluses are used to establish various reserves.  Some of the districts did not use the reserve funds for its intended purpose and made payments out of the General Fund instead.  Other findings include over funding of some of the reserves and not crediting the interest earned in the reserve account.


Follow-up Action


The Subcommittee will work on recommendations to the Board of Regents regarding proposed policy changes related to fund balance limit.  OAS will also monitor any legislative changes affecting various reserves, such as Employee Benefit Accrued Liability Reserve (EBLAR), and Other Post-Employment Benefits (OPEB), and will keep the Subcommittee informed.


  • Questar III BOCES – Eastern NY Regional School Support Center


Summary of Audit


The contract payments to Questar III exceeded the actual costs incurred in two of the years.  The total amount of overpayments for the two-year period was $116,000.  Consultants who are not regular employees of Questar III were not always paid according to their contracts. Eastern RSSC did not always comply with proper expenditure rates for travel.  A physical inventory of 76 items showed that 5 could not be located and were not reported to authorities.

Follow-up Action


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


  • Fillmore Central School District


Summary of Audit


Findings in the area of Extraclassroom Activity (ECA) Fund include inadequate segregation of duties between cash receipts and disbursements; $43,000 was not  deposited intact, that is cash was substituted with personal checks or checks that were unrelated to the fund; $7,260 in cash receipts were unaccounted for and potentially misappropriated. District employees received additional pay ($139,058) that was not properly authorized, or supported with proper documentation. Prior to the appointment of the claims auditor, $3.7 million in disbursements were not properly supported by a warrant certifying board approval. District credit card charges totaling $4,770 were not supported with receipts, meals were purchased in excess of board-approved rates, and $66,000 in lunch fund disbursements were not paid in a timely manner.


Follow-up Action


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


  • Lancaster Central School District


Summary of Audit


The District did not follow its procurement policy to ensure that the required bids and purchase quotations were obtained. Six of twenty-five purchases tested ($73,792 of $256,655) were made through State contract or cooperatively purchased through BOCES but without the appropriate documentation. Purchases totaling $104,438 lacked documentation to indicate that written quotations and competitive bids were obtained.


Follow-up Action


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


  • South Country Central School District (Budget Review)


Summary of Audit


The predicted fund balance at the end of June 2009 is $10.9 million which is $6.7 million more than the legal limit.  The District issued a $3 million bond anticipation note in October 2008 without prior notice to the State Comptroller, as required by law, and the District’s required quarterly reports were not submitted timely. The District also did not provide the Comptroller’s office with the necessary documentation to support budget appropriations for the Teachers Retirement System or the Employees Retirement System.


Follow-up Action


Staff from the Office of Education - P-16 will contact the BOCES District Superintendent to discuss findings and identify any appropriate follow-up actions.


  • Roosevelt Union Free School District (3rd Quarter Result of Operations)


Summary of Audit


The District’s 2008-09 third quarter results of operations indicate that the District is on track to exceed its revenue projection and to stay within its budgeted expenditure limits.  While the District has been working to improve their over-expenditure of budget line codes, 85 budget codes are still over-expended by $4 million as of March 2009.  The $6 million Academic Improvement Grant has been appropriated in the budget, but only $2.8 million has been designated for specific purposes.  There were also findings related to the special aid fund such as the charging of current year’s salaries to grants that expired on June 30, 2008 and the budgeted appropriations being greater than the estimated revenue by $94,667.


Follow-up Action


The Department will continue to closely monitor the District’s fiscal controls and condition.


  • St. Mary’s School for the Deaf


Summary of Audit


The School did not often follow procedural guidance provided by the Department and its own internal policies and procedures when procuring goods and services.  As a result, there is limited assurance that it received goods and services at the lowest possible prices. Out of a sample of 20 transactions that should have been competitively bid, only one was properly bid according to the Department’s guidelines. The remaining 19 transactions (totaling $1.8 million) had several issues, such as non-public advertising, and/or written specifications.  Also, the School spent $30,395 on fund raising activities that is not a reimbursable use of State funds.


Follow-up Action


The Department is exploring the most appropriate method to enhance accountability over the use of State funds related to procurement for State-supported schools.