THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234

TO:

The Honorable the Members of the Board of Regents

Subcommittee on Audits

FROM:

Theresa E. Savo 

SUBJECT:

Board of Regents Oversight – Financial Accountability

DATE:

August 22, 2005

STRATEGIC GOAL:

Goal 5

AUTHORIZATION(S):

Office of the State Comptroller

Audit

Major Finding

Recommendations/Response

East Meadow Union Free School District

Report S8-5-6

10^th 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 did not review each claim submitted to it and the internal claims auditor only examined a sample of claims. The District spent about $67,000 on travel and conference expenses for management and Board members, and some claims did not comply with District policies.  The District's daily meal reimbursement rate significantly exceeds the federal per diem rate and some Board members were reimbursed for flights to Albany, although it violated a District policy.

Over $61,350 was expended for meals and refreshments at 890 meetings; the documentation available was generally not sufficient to determine if District policy was followed. Three officials had credit cards assigned to them and the Board had not established a written policy governing usage. No cell phone policy existed, although almost $20,000 was spent on 46 cell phones. The audit found that despite a lack of policy the phones were well managed.
Finally, the audit found the treasurer did not adequately control the use of her signature. 

9 recommendations

The report recommends the internal claims auditor be responsible for reviewing all claims, including the new policies regarding travel, meal reimbursement, credit card usage, and meals and refreshments provided at meetings. The report also recommends the Board reduce the meal reimbursement rate provided to officials, consider establishing a per diem rate for lodging, consider amending its meal policy for off campus meetings, and monitor compliance with the policy for cellular telephones.

The report recommends the practice of paying managers a mileage allowance for traveling to attend evening meetings be eliminated and the payment of meals for managers when they stay to attend an evening Board meeting should also be eliminated. The report also recommends the retention of itemized receipts to support all credit card charges. Finally, the report recommends the treasurer better control the use of her signature.  

District official's generally agree with the recommendations and have taken steps to implement many.  

Syosset Central School District

Report S8-5-7

10^th 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 Superintendent, the Deputy Superintendent and the Director of Business Operations used from three to five personal leave days each year that they were not entitled to under the terms of their employment contracts. The audit estimates this to have a cash value of about $23,700.  The Board had not adopted a written policy on the appropriateness of providing meals and refreshments to employees attending School District meetings and events. The District expended about $125,000 for these items at 983 meetings and events.  The documentation supporting the expenses generally did not show who attended and the reason why meals and/or refreshments were required.

Mileage claims, of more than $18,000, submitted by three managers lacked detailed statements that showed the date, location, and purpose of the business travel.  In addition, other travel-related claims lacked sufficient documentation. The Board had not adopted a written policy on credit card usage and officials did not always include detailed receipts or invoices to support the charges. The Board had also not adopted a policy on cell phone usage. In addition the District did not monitor usage.

6 recommendations

The report recommends the Board ensure all employee benefits provided to District officials are in accordance with employment contracts.  The report also recommends the Board consider amending its meal policy to limit when the School District provides meals and/or refreshments, require its managers to submit monthly mileage statements, consider establishing reasonable maximum rates for travel related lodging and meals, and conduct a cost benefit analysis on the use of cell phones. 

The report recommends that managers and the internal claims auditor require every claim contain original receipts or invoices, sufficient explanation to determine whether the expenses conform to policies, and the amount represents actual and necessary School District expenditures.

District officials agree with the recommendations and indicated that all will be reviewed and incorporated.

Elmont Union Free School District

Report S8-5-9

10^th 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 District's internal claims auditor also had other duties, which hinders an independent review of all claims. The Board had not adopted a policy on credit card usage by the Superintendent and Board members.  In addition, the officials did not always include detailed documentation to support charges.  The Board's travel policy did not define which expenses were reimbursable and did not establish maximum reimbursement rates.

The Board had not established a written policy on cell phone usage. There is no policy establishing when it is appropriate to provide meals and refreshments to employees attending School District meetings. The documentation related to meal and refreshment expenses generally did not show who attended the meeting or why meals and/or refreshments were necessary to conduct School District business. The audit also found that the treasurer had incompatible duties, which weakens internal control. 

4 recommendations

The report recommends the Board consider appointing an internal claims auditor who is independent of other business transactions. The report also recommends the internal claims auditor require sufficient supporting documentation to determine claims comply with District policies and procedures, and the amounts represent actual and necessary expenses.

The report recommends the Board monitor compliance with the newly adopted policies on credit cards, travel related expenses, cell phones, meals, and refreshments at events. The report also recommends School District travelers should have sufficient documents to establish their tax exempt status when traveling within New York State.

District Officials agree with the recommendations and have imple-mented them.

Lawrence Union Free School District

Report 2005M-38

10^th Judicial District

$0 adjustment

The audit found the Board had not established critical internal controls and in some instances the controls were improperly designed or operated inefficiently. The internal claims auditor did not report to the Board and was not provided with written job duties. The audit identifies numerous instances of insufficient documentation or errors in the area of claims processing and non-compliance with Board policy or laws relating to procurement.

Significant control weaknesses exist related to computer operations. They include lack of written policies and procedures, weak or non-existent controls relating to access to programs and data, and the ability to alter previously entered information.

The treasurer did not investigate differences identified during the bank reconciliation process, duties were not sufficiently segregated, and journal entries were not approved or reviewed.

Perpetual inventory records were not maintained, periodic inventories were not conducted, there was no comprehensive list of capital assets, items were not tagged, and the location of items could not be determined.

Policy and procedures did not exist for the payroll process, individual time records were not maintained for some employees, a final payroll review was not being done and there was a lack of segregation of duties.

The Board lacked policies on cell phones, travel and meal reimbursement, and credit card use. The Board subsequently adopted policies on cell phones and travel and meal reimbursement.

20 recommendations

Six of the recommendations were related to internal controls. The recommendations are for the District to conduct a comprehensive internal control review of computer operations, ensure bank reconcili-ations are done with appropriate follow-up, segregate duties in the treasurer's office, eliminate the use of a rubber signature stamp, and ensure all journal entries are approved in accordance with District policy.  The report also recommends the Board develop a written duties statement for the position of internal auditor and require the internal auditor report to the Board.

Two of the recommendations relate to claims processing. One recommends the internal auditor require sufficient supporting docu-mentation and the second is for the Board to remind all relevant employees of procurement policy and bidding laws.

Five of the recommendations relate to capital assets. The report recommends the Board establish a comprehensive capital asset policy. The report recommends the district comply with established procedures on disposition of assets, appoint a property control manager with responsibility for maintaining capital asset records, complete a comprehensive inventory of capital assets and conduct periodic physical inventories, and assign an identifica-tion number, and if possible, display the name of the District prominently on the piece of property.

Four recommendations relate to payroll. The report recommends the District require employees maintain a daily record of hours worked, if required by contract, and someone independent of the payroll preparation process should review final payrolls. The Board should establish written policy and procedures for the payroll process and assign payroll duties so that work of one individual independently verifies the work of another.

Three recommendations address policy issues. They include recommending the Board consider establishing a maximum per diem rate for lodging for employees on official business, and adopt a policy that provides direction for credit card authorization limits and documenta-tion requirements. The final recom-mendation is for the internal auditor to require that every credit card claim contain enough documentation to determine it complies with District policies; and that the amount claimed represents actual and necessary District expenses.

District Officials did not directly address the specific recommenda- tions in their response.  They indicated that they have already begun a corrective action plan, which will be forwarded to the auditors.

School Energy Efficiencies

Report 2005-MR-7

$0 adjustment

The audit examined six districts to determine if they had established a comprehensive energy conserva-tion program to help monitor and control daily energy consumption and its cost.

None of the six had adopted a formal written comprehensive conservation policy that addressed energy savings on a day-to-day basis. Officials from all six districts said they performed numerous practices and procedures to conserve energy; however, only two districts could document the nature of such practices and procedures. The actions did result in savings in each of the two districts of over $200,000.

Four districts had effective energy monitoring systems in place, three were able to track the cost effectiveness of their conservation measures, and two were able to track energy consumption and costs on a monthly and yearly basis for individual buildings.

3 recommendations

The report recommends the districts establish an energy conservation program, designate a district employee to serve as an energy manager, and seek out best practices in other school districts.

Three of the districts responded to the report. One district indicated they were in agreement with all of the recommendations. The other two said they would continue to closely monitor energy consumption and consider the recommendations.

School District Medicaid Reimbursement

Report 2005-MR-2

$2.8 million in Unclaimed Funds

The audit attempted to determine if a sample of school districts claimed the Medicaid reimbursements to which they are entitled for services provided to eligible special education students.  The audit found that eight school districts failed to claim at least $2.8 million of Medicaid reimbursement for related services, Targeted Case Management (TCM), and ongoing service coordination.

The audit found many reasons why school district officials did not claim the reimbursement. Every district had difficulty in obtaining the proper documentation from providers needed to file claims.  Staff turnover and poor communication between departments sometimes resulted in delays in billing.  Four districts were unfamiliar with the process for claiming TCM services. Two districts used federal grant funds to pay providers’ salaries for services to Medicaid eligible students, thus making these services ineligible for Medicaid reimbursement. One district failed to use a qualified provider to oversee speech pathology services, rendering those services ineligible for reimbursement.

9 recommendations

The report recommends that program staff in districts’ pupil services and special education notify business office staff and provide appropriate documentation needed to prepare Medicaid claims. Another recom-mendation is for districts to explore using federal grant moneys for non-Medicaid eligible services. If they have not done so, districts should obtain Department of Health authorization to claim reimbursement for ongoing service coordination.  The report also recommends that districts train staff on Medicaid reimbursement requirements, require providers submit required documen-tation on a timely basis, review all files to identify services that can be claimed for Medicaid reimbursement, implement procedures for the timely filing of claims, ensure only qualified providers deliver related services, and reconcile amounts claimed for Medicaid reimbursement with the amounts received.

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

Office of the Inspector General Department of Health and Human Services

Audit

Major Finding

Recommendations/Response

Review of Medicaid Speech Claims Made by the New York City Department of Education (NYCDOE)

Report A-02-02-01029

$435,903,456 disallowance

The objective of the audit was to determine whether federal Medicaid payments for speech services were in compliance with federal and State requirements.  The audit covered the period from September 1, 1993 through June 30, 2001.

The auditors examined 100 speech claims based on a statistical sample and found that 86 did not comply with federal laws and regulations, federal guidance, State regula-tions, or the Medicaid State plan.

Of the 86 claims, 68 contained more than 1 deficiency.  For 42 claims, the auditors were unable to verify that the services billed were rendered; for 47 claims, the auditors were unable to verify that a minimum of 2 speech services were rendered during the month billed; 2 claims lacked any documentation; 43 claims lacked a referral by an appropriate medical professional; for 24 claims, no child's plan/family plan was provided; 1 claim did not include a recommendation for speech services in the child's plan/ family plan; and for 76 claims, the services were not provided by, or under the direction of, an ASHA certified individual or an individual with similar qualifications.

The audit estimates the State improperly claimed $435,903,456 in federal Medicaid funding over the 8-year period. 

5 recommendations

The audit recommends the State:

• refund the $435,903,456 to the federal Government,
• provide proper guidance to NYCDOE,
• reinforce the need for NYCDOE to comply with federal and State requirements,
• improve monitoring of NYCDOE's speech claims, and
• instruct NYCDOE to maintain appropriate documentation to support its speech claims.

State Department of Health officials disagreed with most aspects of the audit including the audit period, approach, criteria and conclusions. State officials believe the auditors applied federal regulations designed for a medical office setting to an educational setting and that the audit had not been conducted in accordance with generally accepted government auditing standards.

     The Hotline was created to provide internal and external customers with an opportunity to report inappropriate or questionable activities. The reporting of such activities and subsequent follow-up by the Department can reduce the risk of improper actions going undetected.  This process can also serve to deter the occurrence of other improper activities.

Nature of Complaints: 2/05 - 7/05

Nature of Complaint:

Total

Board governance

39

Board member/Elections

9

Special Education

8

Budget/Budget vote

7

Test impropriety

5

Completion of higher education program

5

Contractor/Grantee

4

Management misconduct

4

School district mergers

3

Financial fraud

2

Misuse of vehicle

2

Student records (FERPA)

2

Teacher certification

2

Audit information

1

False statements, certification, etc.

1

Fundraising/Commercialism

1

Home Schooling

1

Inappropriate termination

1

Lunch program

1

School district organization

1

Theft

1

Violence/Harassment

1

Total

101

Complaints per Entity: 2/05 - 7/05

Type of Entity:

Total

School District*

77

Other

7

Higher Education

6

Non-public school

2

BOCES

2

Cultural Institution

2

Internal- SED

2

Home Schooling

1

Rehabilitation facility

1

Special Act School District

1

Total

101

*  One school district had 23 of the 73 complaints.