The Honorable the Members of the Board of Regents

Subcommittee on Audits



Theresa E. Savo 



Board of Regents Oversight – Financial Accountability



September 27, 2005



Goal 5





Executive Summary


Issues for Discussion


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


1.                  Status of School District Financial Accountability Regulations and Guidance

2.                  Completed Audits

3.                  Federal Single Audit Findings and Resolution


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 


            Status of School District Accountability Regulations and Guidance – Three documents are being worked on:  Guidance, Questions and Answers, and the Regulations.  The professional associations will be given the opportunity to provide comments on each of the documents as they are developed and the documents will be presented to the Subcommittee for comment.  Once the Regulations are approved by the Subcommittee, they will be presented to the full Board for approval. 


            Completed Audits – Reports are provided on three districts’ administrative costs; a district’s health, dental, and vision claims; several district’s acquisition of athletic fields; a review of special education related services and itinerant services; a federal audit of Title I; a federal review of the child nutrition program; and two follow-up audits.


            Federal Single Audit Findings and Resolution – Any school district or entity which expends over $500,000 in federal grants must have a Single Audit conducted in accordance with the Federal Office of Management and Budget’s (OMB) Circular A-133.  Findings must be included in the report, and the school districts and entities must prepare a corrective action plan.  This segment provides an overview of the process and data on the number of findings and resolution.




For item one (School District Accountability), the advice and guidance of the Members of the Audit Subcommittee are sought.


For items two (completed audits) and three (Single Audit Findings), no further action is recommended.


Timetable for Implementation




The following materials are attached:

·              Roadmap

·              Minutes of September Meeting (Attachment I)

·              Audit Report Abstracts (Attachment II)

·              Single Audit Findings (Attachment III)

·              Audit Reports






Date:  October 6, 2005

Time:  9:45-10:30 am

Location:  311 EB





Opening Remarks




Review Agenda/Minutes (Attachment I)




Status of School District Financial Accountability Regulations and Guidance


SED Staff


Audit Report Abstracts (Attachment II)

Questions Addressed

SED and OSC Staff


Federal Single Audit Findings and Resolution (Attachment III)




Current Issues




Next Session





Attachment I



September 8, 2005


Subcommittee Members in Attendance:


Regent Geraldine D. Chapey, Chair

Regent Arnold B. Gardner, Vice Chair

Regent Joseph E. Bowman

Regent Harry Phillips, 3rd 


Other Members of the Board of Regents in Attendance


Regent Milton L. Cofield

Discussion Items


Regent Chapey opened the meeting by welcoming everyone and reminding the members of the increasing importance of accountability in the public sector including school districts. She stated that some of the Comptroller's audit reports have illustrated the need for change in management’s approach to accountability.


Follow-up From the Previous Meeting


Staff informed the members that legislation regarding the accounting profession was provided to them and that staff have posted the document describing the roles and responsibilities of key school district staff on the web site.


Previous Meeting Minutes


The Subcommittee Members approved the minutes of the prior meeting.


Development of School District Financial Accountability Regulations


The Governor signed the legislation on July 19, 2005. Department staff are working on issuing three documents:  a summary of key requirements, the Commissioner's Regulations, and frequently asked questions. The documents will be provided to the Subcommittee as they are completed.


Staff provided some examples of issues that remained to be worked out in issuing regulations and guidance documents. For example, the legislation requires the use of a request for proposal for obtaining the services of the independent auditors, but clarification is needed regarding the appropriateness of honoring existing multi-year agreements.




Staff was available to answer questions on the following audits:


Staff provided an overview on the recent history of Medicaid related audits and described steps that have been taken in the Department, as well as in the Department of Health, to address some of the issues identified in the audits.  The Regents asked if they should do something relative to the Medicaid audits. Staff stated that the Department of Health is taking the lead in responding to the audits, but agreed to raise the issue with the Chief Operating Officer. 


90-Day Audit Follow up


Staff informed the Subcommittee of the process used by the Office of Audit Services to follow up on the status of recommendations 90 days after the issuance of the final audit report. The response of the Hempstead Union Free School District was used as an example to illustrate the process.


Fraud, Waste and Abuse


Staff informed the Subcommittee of a new initiative to provide an outlet for individuals to notify the Department of allegations of impropriety in USNY institutions.


Miscellaneous Discussions


Deputy Commissioner Duncan-Poitier briefed the members on the status of changing the regulations relative to Certified Public Accountants. She indicated that progress is continuing and that draft regulations will be provided to the Board of Regents in the executive session at next month's meeting.  Regent Phillips asked that a representative of the Big 4 accounting firms be invited to attend a Subcommittee meeting in order to discuss proposed changes in the accounting profession.


Regent Cofield inquired about how the Regents are kept informed of audits of the Education Department. He indicated that he was not looking for volumes of reports, but a succinct summary so that all members can be aware. Staff described the current process for summarizing all audits. They agreed a brief document could be prepared to inform all members of the results of any Education Department audits.


Regent Bowman asked if staff could communicate recurring audit findings to school districts and other USNY institutions so that they can be educated on the types of findings that auditors are developing and take corrective action.  Key audit findings are summarized in the Reference Manual for Audits of School Districts and summaries will be added to our web site.

Attachment II


Audit Report Abstracts

Regents Subcommittee on Audits

October 2005


Office of the State Comptroller


Major Finding


Central Islip Union Free School District

Report S8-5-11

10th Judicial District

$0 adjustment


This audit was 1 of 15 conducted to determine whether District officials have established appropriate internal controls over expenses incurred on behalf of School District managers and members of the Board.


The audit found that the Board had not established some critical written policies. The Board had not adopted a credit card policy and $3,155 in charges by Board members could not be supported and may represent Board members’ personal costs. The lack of a travel policy resulted in lodging costs being incurred far in excess of the federal per diem rate, and Board members staying extra days at conferences. Board members were reimbursed for local mileage including for commuting from their homes to Board meetings. There were no policies regarding when it is appropriate to provide meals and refreshments to employees attending School District meetings, to reimburse employees for the business use of their personal telephones and internet access or when it is appropriate to provide cell phones.


The audit also noted weaknesses in the internal claims audit process. The Business Administrator overrode the internal claims auditor's decision to deny reimbursement for claims submitted by Board members. In addition, the internal claims auditor approved credit card claims that did not contain receipts or enough information to determine if the charges represented actual and necessary District expenses.


Finally, the audit found the Superintendent was overpaid when he cashed in unused vacation days.

13 recommendations


The report recommends that the Board adopt written policies for travel related expenses, reimbursable telephone and internet expenses, and cell phone usage. The Board should also approve conference travel by Board members, review credit card charges identified in the report to determine if they represent actual and necessary costs, review the duplicate payment made to the former Superintendent, ensure all benefits paid to employees are consistent with the terms of their contracts and monitor compliance with the revised meal and refreshment policy. Board members should also submit mileage claims that include detailed information on the purpose of the trip. 


 The report also recommends that the Superintendent and Board members submit detailed receipts and invoices to support all credit card charges.


The report recommends the internal claims auditor require that every claim contain enough supporting documentation to determine it complies with District policies, and the amounts represent actual and necessary expenses. Finally, the report recommends that only the internal claims auditor should approve claims for payment.     


District officials did not specifically respond to the recommendations.

North Shore Central School District

Report S8-5-32

10th Judicial District

$0 adjustment


This audit was 1 of 15 conducted to determine whether District officials have established appropriate internal controls over expenses incurred on behalf of School District managers and members of the Board.


The audit did not identify any significant exceptions with the District's administrative expenses. The report did identify opportunities to improve policy, guidance, and documentation requirements for certain expenditures.


The District did not have a written policy governing cell phone usage. Similarly, there is no policy on the appropriateness of providing meals at meetings and events. The documentation supporting the expenses was not always sufficient.


The auditors note that subsequent to the audit period the District had adopted policies regarding cell phone usage and meals and refreshments at meetings.

2 recommendations


The recommendations are for the Board and District managers to monitor compliance with recently enacted policies regarding cell phone usage, and meals and refreshments provided at meetings and events. The report also recommends that all claims for meals and refreshments be adequately supported by documenta-tion. 


District officials agree with the recommendations.

Hempstead Union Free School District Internal Controls

Report 2005M-62

10th Judicial District

$0 adjustment


The audit found that controls do not exist over most District operations and that any number of District employees can purchase supplies or services with no central oversight or approval. District school buildings have closed or are in significant need of repair, classrooms are overcrowded, and many students are housed in inadequate, temporary classroom space.


Some examples of poor controls identified in the report include:


$2.3 million paid for leasing, installing and relocating portable classrooms that are necessary because of the District’s failure to maintain and provide adequate facilities for its students.


$1.1 million paid to three employment agencies for temporary employees.


$900,000 paid on 18 professional service contracts that were awarded without benefit of competitive proposals.


$117,145 paid to three Assistant Superintendents, a District Treasurer and a District Clerk for accrued and unused leave time upon termination of services with the District, even though there was no Board resolution entitling them to such payment.


The report also cites instances of excessive cell phone usage, credit card reimbursements without suf-ficient documentation, and payment for personal expenses of District officials.


The District did not maintain an inventory system, used confirming purchase orders excessively, did not adequately control cafeteria cash receipts, and did not record partial absences on payroll records.


The report also cites the poor control environment created by the Board.


29 recommendations


The report recommends the Board adopt proper policies to govern its own actions, require periodic reviews of District buildings, address the lack of usable classrooms, take appro-priate action to retain administrative personnel and approve budgets on a timely basis.


The report further recommends the Board examine the termination payments made to former officials. The Board should make sure they were consistent with the provisions of their employment contracts or Board resolutions, require advanced approval, examine past termination payments and if inappropriate, take steps to recover the funds.


The report also recommends the Board adopt written policies for meals and refreshments at District meetings, consider establishing maximum per diems for travel, and ensure a cost-benefit assessment of cell phone use is conducted.


The report recommends the internal claims auditor require every claim contain supporting documentation to determine it complies with District policy and procedure and the amount represents actual and necessary District expenses.


In regard to procurement of goods and services, the report recommends limiting the use of confirming purchase orders, requiring approval by the officer giving rise to the claim prior to payment, preparing a cost-benefit analysis of hiring temporary employees, entering into written agreements with all individuals providing professional services, soliciting proposals from prospective vendors, and ensuring that payments for services are not excessive.


The report contains recommenda-tions for the Board to establish a comprehensive capital assets policy, ensure a complete physical inventory of all capital assets is taken and compared to asset records, investigate missing items identified in the audit, establish policies and procedures to account for supplies, and establish vehicle maintenance and repair records.


The report also recommends the use of pre-numbered cash receipts forms, daily reconciliations of cafeteria receipts, timely cash deposits and notifying all depository banks that cash transfers can be made only with written authorization.


Finally, the report recommends that District officials establish procedures to ensure staff leave accrual records are accurate.


District officials agree with the recommendations and state that many were implemented prior to the issuance of the final audit report.


Syracuse City School District Health, Dental and Vision Claims

Report 2005M-1

5th Judicial District

$12,072 overpayments


The District's internal controls over its health, dental and vision benefits were not appropriately designed and operating effectively to help ensure that payments made to a third-party administrator were proper. The District's claims auditor did not audit the third party administrator's statements and check registers. District personnel were not aware of certain charges on the administrator's documents, and did not possess the detailed supporting records to test the validity of charges.


The District unknowingly paid 110 duplicate claims totaling $10,900, and nine vision claims totaling $1,172 for ineligible individuals.


Despite the internal control weaknesses, the audit tests identified an extremely low error rate. For example, the 110 claims represented only $10,900 out of $46.3 million in claims paid, which is an overpayment of 0.02 percent. 

6 recommendations


The report recommends the Board: request more detailed information from the third-party administrator in electronic format, establish a written policy to address the audit of the third party administrator, ensure sufficient funds are on deposit to pay claims promptly, require one or more District employees receive training in the use and application of third party reports, and seek recovery of any improperly paid claims. 


School District officials generally agreed with the recommendations and indicated they plan to take corrective actions. 

The Greenburgh, Valhalla and Eastchester School Districts and the Town of Eastchester Acquisition of Athletic Fields

Report 2005-MR-8

 9th Judicial District

$2 million in future costs


In an attempt to acquire athletic fields at no cost, the three Districts and the Town allowed dirt haulers to dump construction and demolition (C&D) debris on their properties in exchange for the dirt haulers’ renovating their athletic fields. The audit estimates the dirt haulers saved between $7.4 million and $19.4 million. By accepting the C&D debris the Districts and Town essentially operated solid-waste disposal facilities without meeting State environmental requirements.


The debris was subsequently found to be contaminated and the fields are therefore unusable until environmental approval is obtained. The Eastchester District has already expended in excess of $478,000 in remediation work. The auditors estimate the three Districts and the Town could spend in excess of $2 million. 


The three Districts generally avoided seeking or obtaining taxpayer approval, did not comply with bidding requirements, entered into impermissible equipment-lease agreements and did not acquire appropriate approval and permits from State agencies.   

8 recommendations to the Districts


The report recommends that the Boards of Education finance capital projects in accordance with pro-visions of applicable statutes, establish policies and procedures to ensure compliance with environ-mental laws, and continue their efforts to recoup costs connected with the remediation and completion of the athletic fields.


The report further recommends that the Boards of Education ensure agreements for purchase and public works are properly executed, require competitive bidding, and ensure District officials consider all financing alternatives before entering into a contract of significant dollar value.


The report also recommends the Districts submit appropriate capital projects documentation to the Department for approval and oversight, and establish procedures to ensure voter approval for financing and expenditures of public funds.


District officials did not specifically address the recommendations. There is disagreement over the character-ization of the material as C&D. There is also disagreement on the need to obtain voter approval as well as the need to competitively bid some of the work. 

State Education Department, New York City Department of Education, and Erie County

Administration of Payments for Preschool Related Services and Special Education Itinerant Teachers (SEIT)

Report 2003-S-39

$0 adjustment


The New York City Department of Education (NYCDOE) overpaid providers $731,000 because it used the wrong payment rates in reconciling 2000-2001 payments to

SEIT providers. In addition, the NYCDOE and Erie County overpaid SEIT providers more than $358,000 and $17,000, respectively, in the two years reviewed because the municipalities either did not update enrollment-related data or did not verify that services were actually provided.


The NYCDOE also improperly reconciled $4 million in payments to another 13 providers before SED had posted final SEIT session rates for 2000-2001. The report also identified instances in which both municipalities paid for SEIT services when students were absent for long periods (when teachers were on extended leave or unavailable) and when providers delivered fewer or different services than IEPs prescribed.


The audit also found providers billed the NYCDOE for 62 related services sessions for absent students; for 271 individual sessions when they actually delivered group sessions; and 184 sessions where the clinicians provided related services to students at the same time/day, even though the clinicians’ records showed they were at different locations those days. Erie County also paid for related services that were not provided, and for individual sessions that clinicians delivered in a group format. Erie County and the NYCDOE paid for related services that were not delivered, or were not delivered as prescribed, because they did not verify that students actually received the services for which payments were made.

11 recommendations

  8 to State Education Department


  3 to the NYCDOE and Erie County


The recommendations to SED are to direct NYC and Erie County to investigate specific instances of overpayments, instruct NYC staff to verify payment rates before reconciling payments, develop formal payment guidelines for municipalities, direct municipalities to develop a means of monitoring providers’ compliance, require that contracts with service providers state that providers must notify the municipality and the Committee on Special Education when a student is absent for five consecutive days, remind municipalities that records of SEIT sessions should include starting and ending times, and formally assess the propriety of paying for SEIT on a enrollment basis.


The report also recommends SED provide formal direction to municipalities to ensure the related service providers are only paid for IEP service actually provided.


SED officials generally agree with the recommendations but believe that some of them go beyond oversight responsibilities and deal with internal control weaknesses within the municipalities.


Specifically, SED officials disagree with the recommendations to instruct NYC staff to check posted rates, to not pay SEIT providers for absences, and to notify the Committee of illegal absences.  

Compliance with Section 3602 Subdivision 26 of the State Education Law - Follow-up

Report 2004-F-01

$0 adjustment


The initial report, which was issued on December 13, 2002, assessed school district compliance with requirements for providing an instructional technology plan and Department monitoring and oversight of districts’ efforts to provide plans. The conclusion of the original audit was that there was a risk that the plans and school districts were not in compliance.


The original audit recommended the Department develop specific guidelines for school districts to follow, review technology plans for compliance, develop multiple methods to instruct school districts to prepare adequate technology plans, and ensure all districts submit a plan.



4 recommendations


The follow-up report found that the Department had implemented all of the four recommendations contained in the original audit.



Implementation of the RESCUE Program

Report 2004-F-30

$0 adjustment


The initial audit report, which was issued on September 19, 2003, examined the Department’s efforts to promote districts’ preservation of their school buildings and the appropriate use of State Building Aid. The audit found the Department’s control system does not ensure that all districts have developed adequate long-range facility preservation plans or building condition Report Cards – two of the RESCUE program’s intended goals. The audit also found that, because of limited monitoring, districts have inappropriately claimed mainte-nance costs and other items when requesting State Building Aid. The audit concluded that because of these weaknesses, the benefits of the RESCUE program were limited and there was risk that districts incorporated ineligible costs into capital projects funded with State Building Aid.


The follow-up audit concluded the Department has made significant progress in implementing six recommendations. The recommen-dations were for the Department to provide districts with a format for the Plan and Report Card, enhance monitoring procedures, modify building aid guidelines, improve processes to assess the propriety of change orders and incidental expenses, develop a process to identify districts that incorporate ineligible costs in capital projects, and reject items inappropriately charged to capital projects claims for Building Aid.

6 recommendations


The follow-up report found that the Department had implemented five of the six recommendations contained in the original audit.


The one partially implemented recommendation relates to devel-oping a process to identify districts that incorporate ineligible costs in capital projects receiving State Building Aid.

U.S. Department of Education (ED)- Office of Inspector General


Major Finding


Wyandanch Union Free School District

Report ED-OIG/A02-E0031

10th Judicial District

$6.6 million disallowance


The report found that $6.6 million of Title I and Title II expenditures were inadequately supported by Wyandanch's financial system.  The auditors found material differences between amounts recorded on the District's internal accounting system and the amounts reported to the SED as final expenditures. The auditors requested that Wyandanch reconcile the difference between the internal system and the expenditure reports. The auditors were not satisfied with the reconciliation and concluded that the Title I and Title II grant funds were not properly administered.


The audit also found that Wyandanch submitted identical expenditure claims for federal grant programs.  The report also identified significant internal control weaknesses, which places federal funds at risk of being misused. Among the internal control weaknesses identified are lack of segregation of duties, lack of periodic reconciliations and cash management oversight, an obsolete policy manual, failure to follow the policy manual, and an inefficient Board of Education. 

8 recommendations


The report recommends SED instruct Wyandanch to provide proper support for the $6.6 million, improve the financial system, and establish internal controls to ensure identification of the source and application of federal funds.  The report also recommends SED instruct Wyandanch to return the duplicate payment of $165,326 plus interest, review its accounting records to identify any other duplicate payments, establish and implement internal controls, ensure bank statements and other financial reports are reviewed for accuracy, update the policy manual, provide training to all Board members and adhere to laws and regulations for finding experienced candidates to fill vacancies.


SED officials agreed with the recommendations contained in the report. However, they disagree that the $6.6 million was unauditable. Two different Certified Public Accounting firms in addition to the Office of the State Comptroller have audited and reviewed the district's records without reaching the same conclusion.  

United States Department of Agriculture




Financial Management Review of the New York Department of Education Child Nutrition Program

Report A-02-02-01029


$0 adjustment


This was a management review of the Department's Child Nutrition programs. The report had no findings and complements Depart-ment staff for their efforts in improving the management of the program.

0 recommendations

Attachment III


Office of Audit Services

Management Decision Process

Regents Subcommittee on Audits

October 2005


The Office of Management and Budget’s (OMB) Circular A-133 requires non-federal entities expending $500,000 or more in federal awards to have a Single Audit performed each year by an independent certified public accountant (CPA).  OMB Circular A-133 requires the entity to submit the following documents to the Federal Award Clearing House and New York State Education Department (NYSED):



OMB Circular A-133 requires NYSED, the pass-through-entity, to issue a Management Decision for each of the findings submitted on the Single Audit Report.  The Office of Audit Services (OAS) is in the process of issuing Management Decisions to recipients receiving federal awards that pass through NYSED to the sub-grantee.


In 2004, the Office of Audit Services received 918 financial statements from educational entities.  Of these 918 entities, 48 percent or 441, expended $500,000 or more in federal awards.  This is broken down into 319 school districts, 32 BOCES, 86 not-for-profits, and 4 charter schools.


Of these 441 educational entities, 42 of them have a total of 90 Section III (program related) audit findings, related to 28 federal awards in the following three sub-groups:


Type of Auditor Finding

Total Findings

Program Specific


Grants Administration


General Internal Control





OMB Circular A-133 requires the CPA to identify any questioned costs for each of the grants, when appropriate.  Questioned costs are identified specifically to the grant that the finding is related to.  Questioned costs, to date, total $21 million, with one finding carrying a questioned cost of $18 million.


OAS has met with each program office to present the finding(s).  This has a two- fold effect, 1) enabling the program office to become familiar with the sub-recipients finding(s) and 2) providing OAS additional insight into the requirements of each grant.


            The primary purpose of the process is to drive improvement in the programs.