Meeting of the Board of Regents | March 2008
|
|
THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234 |
|
|
Subcommittee on Audits
|
|
|
Theresa E. Savo
|
|
|
Board of Regents Oversight – Financial Accountability
|
|
|
February 27, 2008
|
|
|
Goal 5
|
|
|
|
Executive Summary
Issues for Discussion
Three items are presented for discussion with the Members of the Subcommittee on Audits including:
- Audit Trend – Information Technology (Attachment II)
- Analysis of School Districts Financial Statements (Attachment III)
- Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment IV)
Reason(s) for Consideration
Update on Activities
Proposed Handling
Discussion and Guidance
Procedural History
The information is provided to assist the Subcommittee in carrying out its oversight responsibilities related to audits of financial and reporting practices; performance audits or reviews; ethical conduct issues arising from audits; internal controls; and compliance with laws, regulations, and policies.
Background Information
1. Audit Trend – Information Technology – 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 information technology controls. Department staff will describe the issue in more detail including possible legal and regulatory guidance. (Attachment II)
2. Analysis of School Districts Financial Statements – The Office of Audit Services reviews the annual independent audits of all school districts in the State. Information will be presented on the results of the review of the July 1, 2006 to June 30, 2007 financial statements.
3. Completed Audits
The Subcommittee is being presented with 17 audits this month. The audits have been reviewed by the Department’s Internal Audit Workgroup. Their report is attached. (Attachment IV)
Reports are provided as follows:
Office of the State Comptroller
Adirondack Central School District
Amagansett Union Free School District
Bridgehampton Union Free School District
Canisteo-Greenwood Central School District
Capital Region BOCES
Clinton Central School District
Fire Island Union Free School District
Great Neck Union Free School District
Greenport Union Free School District
Madrid-Waddington Central School District
New Suffolk Common School District
Newcomb Central School District
Onteora Central School District
Pine Bush Central School District
Remsenbury-Speonk Union Free School District
Roosevelt Union Free School District
Sagaponack Common School District
Recommendation
For item one (Audit Trend), the advice and guidance of the Members of the Subcommittee is sought. For item two (Analysis of School Districts Financial Statements) and item three (Completed Audits), no further action is recommended.
Timetable for Implementation
N/A
The following materials are attached:
- Roadmap
- Minutes of the February Meeting (Attachment I)
- Audit Trend – Information Technology (Attachment II)
- Analysis of School Districts Financial Statements (Attachment III)
- Review of Audits Presented – Department’s Internal Audit Workgroup (Attachment IV)
- Summary of Audit Findings (Attachment V)
- Audit Report Abstracts (Attachment VI)
|
REGENTS SUBCOMMITTEE ON AUDITS
MEETING ROADMAP
|
|
||
|
|
|
|
|
|
Opening Remarks |
|
Chair |
3 |
|
Review Agenda/Minutes (Attachment I) |
Approval |
Conway |
2 |
|
Audit Trend – Information Technology (Attachment II) |
Information |
OAS Staff |
20 |
|
Analysis of School Districts Financial Statements (Attachment III) |
Information |
Department Staff |
20 |
|
Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment IV), Summary of Audit Findings (Attachment V), and Audit Report Abstracts (Attachment VI) |
Questions answered |
OSC and Department Audit Staff |
15 |
Your Subcommittee on Audits held its scheduled meeting on February 11, 2008.
Subcommittee Members in Attendance:
Regent Geraldine D. Chapey, Chair
Regent Arnold B. Gardner
Regent Joseph Bowman Jr.
Other Members of the Board of Regents in Attendance:
Regent Roger B. Tilles
Discussion Items
- Regent Chapey opened the meeting by commenting on the new era we are in and the changing world of audit brought about by the accountability legislation. Office of the State Comptroller’s (OSC) audits of school districts, BOCES, and charter schools provide an excellent profile in what is happening in the educational community throughout the State. She also mentioned that for the first time, the Department’s Internal Audit Workgroup provided the Subcommittee with a report of its work, identifying eight school district audits that raise concern which need follow-up and investigation.
- Audit staff briefed the Subcommittee members on a trend in the findings that has been identified through the audits conducted by the OSC. The trend presented involved weaknesses in the claims processing function. Staff described the type of audit findings, the criteria that exist to guide the function, and activities the Department has taken to support school district compliance in this area. The following possible actions have been considered to address the findings in the area of claims processing:
- expanded training and outreach;
- SED working with the various associations representing school boards and business officials to increase awareness of the requirements;
- comprehensive and concrete follow-up with the districts including on-site verification of corrective actions in coordination with OSC; and
- if necessary, the following additional actions may need to be considered:
- stronger statutory provisions and/or policy changes; and
- sanctions which could include a Commissioner’s order for failure to comply.
- Regent Chapey asked for further clarification to the January minutes on the status of the audit of the Title I program at William Floyd Union Free School District. (see follow-up section below)
- Completed audits by the OSC presented this month:
Arkport Central School District
Ausable Valley Central School District
East Williston Union Free School District
Fishers Island Union Free School District
Fonda-Fultonville Central School District
Freeport Union Free School District
Frontier Central School District
Harborfields Central School District
Hunter-Tannersville Central School District
Iroquois Central School District
Liberty Central School District
Menands Union Free School District
Moravia Central School District
Mount Vernon City School District
Nanuet Union Free School District
Naples Central School District
New Paltz Central School District
Orchard Park Central School District
Oyster Bay - East Norwich Central School District
Portville Central School District
Putnam Valley Central School District
Rockville Centre Union Free School District
Rotterdam-Mohonasen Central School District
South Colonie Central School District
South Kortright Central School District
Watervliet City School District
Watkins Glen Central School District
White Plains City School District
- Regent Bowman moved to accept the minutes of the January meeting, Regent Gardner seconded.
Follow-up Item – Clarification to January Board Minutes
William Floyd Title I audit – OAS staff met with staff from the Office of Fiscal Management and the Office of P-16 Education, including the Title I Office. The purpose of the meeting was to discuss the resolution of the final audit report. It was agreed the Department will transmit the final audit report to the U.S. Department of Education and advise them the Department has directed the District to repay Title I funds less any amount that is barred by the statute of limitation. A letter to the Assistant Secretary of Elementary and Secondary Education transmitting the audit is being drafted for the Deputy Commissioner for Operations and Management Services signature.
Attachment II
Regents Subcommittee on Audits
OSC Audit Trend – Information Technology
March 2008
Background
The use of information technology (IT) affects the fundamental manner in which school districts initiate processes, maintain records, and report transactions. These processes and transactions can relate to both fiscal and student data. The extent to which the district uses computer processing in significant accounting applications, as well as the complexity of that processing, determines the specific risks that IT poses to the district’s internal controls. The district’s widespread use of IT presents internal control risks that must be addressed. These risks include unauthorized access to data, changes to data in master files, and potential loss of data.
Common Findings
The audits conducted by the Office of the State Comptroller (OSC) have identified numerous findings related to IT controls. More specifically, the audits have found:
- Access rights to district’s accounting systems are not always controlled, not appropriately assigned, and not periodically monitored to ensure propriety.
- Many boards of education have not adopted comprehensive written policies and procedures detailing the key elements of the information technology system, and establishing an acceptable use policy.
- Many districts have not designated an individual to be a system administrator that is outside the daily business office operation. This individual would be responsible for assigning user privileges to the computerized accounting system, with changes being fully documented and authorized by management.
- Many districts have not developed and the boards have not approved a formal disaster recovery plan. This plan should address the range of threats to the information technology system, including the need to adequately back-up all mission-critical data.
- Internal controls are not always in place to safeguard computer and technology equipment assets, and monitor and enforce compliance with those controls.
Audit findings related to IT were found in 17 of the 28 OSC audits presented to the Regents Subcommittee on Audits in February and in 6 of the 17 audits being presented this month. Since May 2007, 96 of the 244 OSC audits presented to the Subcommittee contained findings related to IT, second only to claims processing as an audit issue.
Criteria
Controls over information technology are included in basic standards for internal controls. For example the Standards for Internal Control in New York State Government discuss key concepts of IT controls. There are no specific statutes or regulations providing more specific criteria for school districts.
Guidance and Training
As mentioned above, IT controls are basic components of internal controls. The Department has provided training on internal controls and approved the curriculum for others to do the same. In addition, as part of the development of the Student Data Collection system, the Department will provide guidance to the field on local data systems and staff, in collaboration with an external advisory group.
Recommendations
Since technology is changing so rapidly, we will convene a group of staff from the Office for P-16 Education, Office of Audit Services, and other Department offices to assess the need to provide more information to school districts and BOCES, evaluate the extent to which information is available to districts and consider approaches to provide further support to school districts on the area of IT controls.
Attachment III
Regents Subcommittee on Audits
March 2008
Analysis of School Districts Financial Statements
School districts and BOCES are required to submit audited financial statements and where applicable, audits required by the federal Single Audit Act (OMB Circular A-133) to the Department. The Office of Audit Services (OAS) receives, processes, and reviews over 700 financial statements annually and a similar number of single audits.
Financial Statements
Each report is reviewed by staff in OAS to assess the following:
- financial condition of the institution;
- quality, accuracy, and completeness of the audit reports;
- significance of any reported management control weaknesses; and
- accuracy of key ST-3 data used for State aid and reporting purposes for districts.
In addition, the financial statements are evaluated to assess compliance with Government Auditing Standards and the Department’s reference manual. Districts with indicators of fiscal stress and fiscal concern are identified and notified by a letter, along with graphical illustration of the trend of its fund balance, revenue, and expenditures, etc. These at-risk districts are monitored. In some cases, they are asked to prepare a plan to address their financial condition.
Based on the review of the 2006-07 financial statements, we have identified 8 school districts as being in fiscal stress and 22 as having indicators of fiscal concern.
OAS also communicates to certain districts based upon the significance of issues identified in the financial statement review. The 2006-07 financial statement review identified 13 school districts that received a “qualified” opinion from its independent auditor. OAS will follow-up with these districts and ask for additional information.
Single Audit (OMB Circular A-133)
As a pass-through entity for federal awards, the Department is required to issue a management decision on single audit findings. A management decision is required for each single audit finding and states whether it sustains the finding or not, reasons for the decision and identifies any expected action by the auditee. OAS issues management decisions to school districts and BOCES. It is anticipated that OAS will issue management decisions to more than 130 institutions for the 2006-07 financial statements.
Where appropriate, compliance with the requirements of OMB Circular A-133 and the adequacy of management's action related to any single audit findings are also reviewed. This often results in further communication with the district and the independent auditor.
Attachment IV
Regents Subcommittee on Audits
March 2008
Review of Audits Presented
Department’s Internal Audit Workgroup
Newly Presented Audits
We reviewed the 17 school district audits that are being presented to the Subcommittee this month. The audits were all issued by the Office of the State Comptroller and the findings were in the areas of procurement, claims processing, payroll, cash, financial reporting, information technology, segregation of duties, budgeting and other. For the most part, districts indicated agreement with the findings in the response to the audits.
The Department has issued letters to all 17 of the districts 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 4 of the audits for further action.
- Bridgehampton Union Free School District – the audit identified a significant excess fund balance in violation of Real Property Tax Law. Staff from the Office of Audit Services (OAS) and the Office for P-16 Education are further reviewing the district’s history of compliance with the Real Property Tax Law regarding fund balance and assessing the District’s response to the audit. Based on that review, and Counsel’s Office input, a decision will be made on any further actions to be taken.
- Capital Region BOCES – the audit identified deficiencies in claims processing, policy development, control over portable technology devices and in the internal audit function. On March 5 Department staff will meet with the Interim District Superintendent to discuss the audit findings.
- Clinton Central School District – the audit identified weaknesses in the audit process used by the independent auditor. The weaknesses may have resulted in the general fund deficit being larger than reported. We referred the audit to the Office of the Professions for possible further action.
- Great Neck Union Free School District – the audit identified lack of compliance with bidding requirements as required by General Municipal Law (GML). The Office for P-16 Education will alert the District that any capital projects will be examined for compliance with bidding requirements.
Initial contact has been made with the New York State School Boards Association regarding school district audits. A meeting is being planned to discuss the many audit issues with staff from the New York State Boards Association.
Follow-up Actions
Since the last Subcommittee meeting, audit staff have reviewed the corrective action plans of seven school districts that had been previously identified for follow-up. Based on the corrective action plans OAS will continue to follow-up with one district. Audit staff have received correspondence from a County District Attorney stating that a grand jury report will be sent when it is released.
|
Audit |
Procurement |
Claims Processing |
Payroll |
Cash |
Financial Reporting |
Information Technology |
Segregation of Duties |
Budgeting |
Other |
|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||
|
Adirondack Central School District |
|
√ |
√ |
√ |
|
|
|
|
|
|
Amagansett Union Free School District |
|
|
|
|
|
√ |
|
|
|
|
Bridgehampton Union Free School District |
√ |
√ |
|
|
√ |
|
|
|
√ |
|
Canisteo-Greenwood Central School District |
|
√ |
√ |
|
|
√ |
|
|
|
|
Capital Region BOCES |
√ |
√ |
|
|
√ |
√ |
√ |
|
|
|
Clinton Central School District |
√ |
|
|
|
√ |
|
|
|
|
|
Fire Island Union Free School District |
√ |
|
|
|
|
|
|
|
|
|
Great Neck Union Free School District |
√ |
|
|
|
√ |
|
|
|
|
|
Greenport Union Free School District |
|
|
√ |
|
|
√ |
|
|
|
|
Madrid-Waddington Central School District |
|
√ |
|
√ |
|
|
|
|
|
|
New Suffolk Common School District |
|
|
√ |
|
|
|
|
|
|
|
Newcomb Central School District |
|
|
|
√ |
|
|
|
|
|
|
Onteora Central School District |
|
|
|
|
|
√ |
√ |
|
|
|
Pine Bush Central School District |
|
|
|
|
√ |
|
|
|
|
|
Remsenburg-Speonk Union Free School District |
√ |
|
|
√ |
|
√ |
√ |
|
|
|
Roosevelt Union Free School District |
|
|
|
√ |
√ |
|
|
√ |
√ |
|
Sagaponack Common School District |
|
√ |
√ |
|
√ |
|
√ |
|
√ |
|
|
|
|
|
|
|
|
|
|
|
Summary of Current and Prior Audit Findings
|
|
May 2007 |
June 2007 |
July 2007 |
October 2007 |
December 2007 |
January 2008 |
February 2008 |
March 2008 |
Running Total |
|
Procurement |
9 |
11 |
12 |
20 |
12 |
11 |
12 |
6 |
93 |
|
Capital Assets |
10 |
1 |
2 |
4 |
0 |
0 |
0 |
0 |
17 |
|
Claims Processing |
13 |
3 |
12 |
17 |
17 |
18 |
13 |
6 |
99 |
|
Payroll |
12 |
3 |
11 |
20 |
18 |
14 |
12 |
5 |
95 |
|
Cash |
6 |
2 |
8 |
15 |
14 |
15 |
8 |
5 |
73 |
|
Financial Reporting |
12 |
3 |
2 |
16 |
6 |
11 |
4 |
7 |
61 |
|
Information Technology |
10 |
10 |
9 |
14 |
15 |
15 |
17 |
6 |
96 |
|
Capital Construction |
2 |
1 |
1 |
0 |
0 |
1 |
0 |
0 |
5 |
|
Extraclassroom Activity Fund |
1 |
1 |
0 |
1 |
1 |
2 |
1 |
0 |
7 |
|
Segregation of Duties |
0 |
0 |
3 |
0 |
15 |
19 |
0 |
4 |
41 |
|
Budgeting |
2 |
3 |
0 |
1 |
1 |
0 |
1 |
1 |
9 |
|
Conflict of Interest |
0 |
0 |
0 |
4 |
3 |
3 |
0 |
0 |
10 |
|
Other |
0 |
2 |
0 |
0 |
0 |
1 |
1 |
3 |
7 |
|
Total |
77 |
40 |
60 |
112 |
102 |
110 |
69 |
43 |
613 |
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 and failure to prepare bank reconciliations.
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.
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.
Budgeting – includes poor revenue projections and use of fund balance.
Segregation of Duties – includes weakness in control caused by individuals having responsibility for incompatible functions.
Other – Districts did not charge non-resident tuition, and for students in foster care.
|
|
||
|
|
|
|
|
|
The District did not establish sufficient segregation of duties over financial transactions. The treasurer performed key incompatible duties of recordkeeping, cash custody, check processing, and online payments. There was also a lack of proper authorization and supervisory approval of wire transfers and journal entries performed by the treasurer. There was also no routine review of computer-generated activity reports by District management to monitor employee’s activity on the accounting system.
The payroll clerk’s duties, which included making changes to employee data and pay rates, and printing, signing, and distributing payroll checks, were not properly segregated. The computerized payroll system did not have adequate controls over changes to payroll data, and there was no periodic review of employee activities on the payroll system.
The board did not provide the claims auditor with adequate training, and 99 payments of claims against the District ($275,000) were not audited by the board or the claims auditor. Workers’ compensation claims in the amount of $32,000 were not audited and were paid after the board had improperly authorized the payment in advance of the audit. Credit card claims totaling $8,800 did not have adequate supporting documentation.
|
The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash disbursements, the payroll clerk, and claims processing.
|
|
|
The District’s business official/treasurer has administrative access rights to the computerized financial system. This individual is significantly involved in financial transactions and day-to-day business office operations. With these broad financial responsibilities, she should not have the ability to control access to the system.
While there were no exceptions upon review of payments to the business official/treasurer, the superintendent and the District clerk, it is necessary to regularly monitor user access rights in order to ensure that job duties are consistent with access to the system. |
The report’s recommendation focused on strengthening the computerized financial system.
|
|
|
The unreserved, undesignated fund balance in the District’s general fund on June 30, 2006 totaled $1.7 million representing 17 percent of the $9.8 million of budgeted appropriations for 2006-07. The District’s unreserved fund balance was more than eight times the amount allowed by law. The fund balance had been in excess of the 2 percent limit allowed by law since June 30, 2001. This excessive balance was caused mostly by the board’s failure to properly budget and monitor appropriations and revenues.
District officials significantly overestimated appropriations for programs for students with disabilities and employee benefits. During a four year period, appropriations exceeded expenditures by a total of $2.6 million.
The District also did not receive tuition for any of the non-resident students who attended the District’s school during the 2006-07 school year.
The claims audit function is not independent because the claims auditor does not report her findings directly to the board.
The District failed to adhere to the requirements and intent of General Municipal Law. The District did not seek competitive proposals for installations and repairs, totaling $28,503, and for refuse removal services totaling $8,326. Computer desks were also purchased ($19,800) without public advertisement for bids. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial condition, non-resident students and claims processing and procurement.
|
|
|
The board did not properly audit claims prior to May 2007. The board allowed the president of the board to audit claims. The president did not regularly verify each claim prior to payment. In May 2007 a claims auditor was appointed. However, she was not provided with clear and concise written policies to follow, and as a result she did not report concerns directly to the board, as required.
Internal controls over payroll were also weak. The assistant business official handled all payroll activities with minimal oversight. There was a $5,800 retirement incentive payment that was not allowable.
Lastly, there were several users of the accounting software that had access rights that exceeded the requirements of their duties, and employees were not held to complexity standards for their passwords. The District also does not have a contingency plan for its information technology operations in place for disasters. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding the claims auditor, payroll and information technology.
|
|
|
There were deficiencies in the area of claims processing, which included the improper appointment of a senior account clerk as claims auditor, no written job descriptions for the claims auditor, and weaknesses in the audit and approval of claims. In 2006, the board appointed a permanent claims auditor who failed to report directly to the board.
The board has also failed to adopt a written policy outlining the policy for providing meals and refreshments to employees and board members. Six out of 29 food and refreshment claims ($5,192) examined were questionable. Two claims totaling almost $3,800 were for lunches served at regularly scheduled meetings, which were not required to be held at mealtime. BOCES also paid $1,395 for bottled water for its employees, at BOCES expense. There were also insufficient controls over coffee shop cards.
Additionally, there were weak controls over safeguarding electronic data, computers and other portable technology devices. Improvements over the procurement of cellular services could result in a cost savings of $20,000. A disaster recovery plan is also not in place.
The board also did not properly establish the internal audit function. A board appointed internal auditor still continues to work in his BOCES position, and holding these two positions at the same time is incompatible.
|
The report’s recommendations focused primarily on strengthening the policies and procedures regarding claims processing and purchasing, technology equipment and data security, and the internal audit function.
|
|
|
The District's CPA firm, Moore and Hart, did not follow their audit program and professional standards while conducting a search for unrecorded liabilities. There were unrecorded liabilities for the fiscal year ending June 30, 2006 in the amount of $440,402. The general fund balance deficit for June 30, 2006 noted in the audited financial statements was $696,975. If the District included the unrecorded liabilities, the general fund deficit would increase to $1,137,377.
Additionally, the CPA firm’s work papers contained 20 instances where the CPA firm did not provide conclusions or work paper references to conclusions.
Also, the audit report did not state that the audit was performed in accordance with generally accepted government auditing standards.
|
The report’s recommendations focused primarily on strengthening the policies and procedures regarding the procurement of audit services and the effectiveness of audit services.
|
|
|
The District has established adequate internal controls over purchasing and an effective procurement process. The provisions of General Municipal Law were followed consistently. District officials also followed competitive bidding requirements in awarding the purchase contract and public work contract to the lowest responsible bidders responding to public advertisements for bids. |
There were no recommendations.
|
|
|
Payments to vendors totaling $788,308 were tested, and it was found that the District did not comply with competitive bidding laws and the District’s purchasing policy. The District paid an electrical contractor a total of at least $420,309 for three contracts without public advertisement for bids prior to the contract awards. Additionally, a firm owned by the spouse of the electrical contractor was paid a total of $765,000 for an electrical contract which was awarded without the solicitation of competitive bids.
Three professional service contracts, totaling $520,693 were awarded without soliciting requests for proposals (RFPs) or any other means of soliciting competition.
There were also control weaknesses in the treasurer’s office as well as a lack of control over budgetary transfers. The board did not establish a dollar limit on the amount of budgetary transfers the superintendent can approve. Job duties over the treasurer’s office were also not properly segregated.
|
The report’s recommendations focused primarily on strengthening the policies and procedures regarding procurement and financial operations.
|
|
|
The District did not establish a payroll policy, nor did it develop formal written procedures to guide the payroll process. There was also no segregation of duties for processing payroll.
Effective controls to protect electronic data from loss or unauthorized use were not established. This includes procedures that address areas of concern such as physical and environmental safeguards and remote access controls.
|
The report’s recommendations focused primarily on strengthening policies and procedures regarding payroll and computer data safeguarding.
|
|
|
The board has not adopted formal policies establishing internal controls related to wire transfers. District management has not documented its wire transfer operating procedures and they do not have a written wire transfer security agreement with the bank handling its checking accounts. Additionally, cash disbursement duties for the investment account have not been adequately segregated.
The previous superintendent also functioned as the claims auditor during his time at the District, which is prohibited by Education Law.
|
The report’s recommendations focused on strengthening the policies and procedures regarding wire transfers and claims audit.
|
|
|
Controls over payroll processing are not adequate. The District treasurer is responsible for all aspects of payroll. Payrolls are not properly reviewed by an individual independent of the payroll process. As a result of these inadequacies, the District did not withhold the required withholding and payroll taxes on health insurance buyout payments and extra compensation, totaling $9,327.
There were no board resolutions or policies to support the salaries and benefits paid to part-time employees. As a result, employee benefit payments ($19,779) were made to certain part-time employees without any evidence of the board's approval.
|
The report's recommendations focused primarily on strengthening the policies and procedures regarding internal controls over payroll.
|
|
|
Ten payments were tested reviewing approved warrants, paid vouchers, and cancelled checks, totaling $77,000, and there were no discrepancies. Ten cancellation checks were traced, totaling $42,000, and ten receipts totaling $3,600 were also reviewed, and again, no discrepancies were found.
However, the report found that the District had not established the appropriate procedures to ensure that cafeteria receipts were deposited timely.
|
The report's recommendation focused primarily on strengthening the policies and procedures regarding cash receipts and disbursements.
|
|
|
The duties of the treasurer and the payroll clerk were not properly segregated and the computerized financial system was not being independently administered.
Additionally, employees received $21,768 more than authorized, while others received $11,275 less than authorized. Due to a lack of segregation of duties and minimal oversight, the District did not properly compensate employees.
The treasurer received cash, prepared duplicate cash receipts, made bank deposits, recorded cash receipt transactions, and made cash receipt journal adjustments. There was also a $213 cash payment from a retiree for his/her share of the health insurance premium received in 2005.
District bank accounts were not reconciled for almost a one-year period, which resulted in significant record keeping errors going undetected. For example, when the September 2006 bank reconciliation was completed in July 2007, there were cash receipts, cash disbursements, and general ledger posting errors that resulted in the cash balance being overstated in the amount of $90,945 for the month.
Lastly, the assistant superintendent for business controlled all administrative rights and could assign user privileges including her own without any oversight. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding segregation of duties and computer system access.
|
|
|
Basic controls of taxes were adequate; however, the District potentially lost approximately $36,000 in interest revenues as a result of infrequent transfers from the tax account to a higher yielding District account. The District’s tax collector could also improve the timeliness of deposits, which could also lead to increased interest revenue for the District.
|
The report’s recommendations focused primarily on strengthening the policies and procedures regarding tax receipts.
|
|
|
District officials did not solicit competitive quotes or issue request for proposals as required by District purchasing regulations, when they procured $39,533 in professional services. District officials also paid these three service providers without a written contract and without board approval. Seven of 18 purchases reviewed (totaling $15,167) were made through “confirming” purchase orders.
Additionally, the board inappropriately authorized the board’s president to sign all District checks.
The District has not adopted a computer security policy to address all major areas of IT operations. User access to financial applications and changes to financial data were not regularly monitored. Password security also proved to be inadequate.
|
The report’s recommendations focused primarily on strengthening the policies and procedures regarding purchasing, the treasurer’s duties and information technology.
|
|
|
The State Legislature recently authorized, and the Governor has approved, an $8 million grant to eliminate the District's deficit and an annual increase in State aid of $6 million, effective immediately.
The District’s general fund revenues and expenditures were reviewed, and it was determined that if current revenue and expenditure trends are maintained, the District could have an operating surplus of $1.7 million by June 30, 2008. This State aid increase will eliminate the fund deficit of $7.9 million and the District could end the 2007-08 fiscal year with an accumulated fund surplus of $7.8 million.
There is also the potential for a 2007-08 operating deficit of approximately $201,000 in the school lunch fund, which could increase the existing deficit to $774,000.
It should be noted that the District has implemented a student attendance computer program and has strengthened its staff training and management involvement. Such efforts have resulted in the identification of discrepancies in attendance records which has enabled the District to collect over $1 million of the $2.1 million that was previously uncollectible. Still, approximately $114,000 of prior years’ unbilled tuition services has been denied, and an additional $120,000 is at risk because of the lack of student attendance records. |
The report’s recommendations focused primarily on strengthening policies and procedures regarding student attendance records, special education costs, federal aid, the general fund and cash flow.
|
|
|
The District had a general fund unreserved and unappropriated surplus of over $314,000 as of June 2006, which exceeded the limit under Real Property Tax Law. This has since been reduced from $585,722 in June 2005 to $314,411 in June 2006. The 2007-08 budget included an appropriation of another $200,000 in fund balance.
The District did not charge tuition for non-resident students in 2006-07, which resulted in a loss of $342,500.
Additionally, two board members had prohibited conflicts of interest. The wife of a board member was paid $14,061 for custodial and landscaping services and $2,593 was paid to the employer of another board member who constructed a porch and steps for the school house and painted the school’s basement.
Lastly, board members did not meet their responsibility to audit claims or appoint a claims auditor; cash and disbursement duties were not properly segregated; and there is no written board authorization for the salaries or benefits received by District employees. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial condition, non-resident tuition, interest in contracts, claims processing, segregation of duties and payroll.
|