Meeting of the Board of Regents | November 2009

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

TO:

Subcommittee on Audits

FROM:

Theresa E. Savo 

SUBJECT:

Board of Regents Oversight – Financial Accountability

DATE:

November 9, 2009

STRATEGIC GOAL:

Goal 5

AUTHORIZATION(S):

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

Date:  November 2009

Time:  TBD

Location:  TBD

TOPIC

OUTCOME

WHO

MINUTES

Opening Remarks

Chair

3

Review Agenda

Information

Conway

2

Update on Activities Related to ARRA

Information

Department Staff

25

Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment I), Summary of Audit Findings (Attachment II), and Audit Report Abstracts (Attachment (III)

Questions answered

Department and OSC Audit Staff

15

Office of Audit Services

Western New York Regional School Support Center

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Office of the State Comptroller

Alfred-Almond Central School District

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Altmar-Parish-Williamstown Central School District

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Arlington Central School District

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Barker Central School District

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Bemus Point Central School District

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* Bethpage Union Free School District (footnote 6)

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* Brentwood Union Free School District (footnote 6)

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Brookhaven-Comsewogue Union Free School District

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Carle Place Union Free School District

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* Catskill Central School District (footnote 6)

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* Cattaraugus-Little Valley Central School District (footnote 4)

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Cheektowaga-Maryvale Union Free School District

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Chester Union Free School District

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Clinton-Essex-Warren-Washington BOCES

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Delhi Central School District

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DeRuyter Central School District

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Dryden Central School District

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Ellenville Central School District

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Fayetteville-Manlius Central School District

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Friendship Central School District

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* Gates-Chili Central School District (footnote 6)

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General Brown Central School District

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* Glen Cove City School District (footnote 1)

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Granville Central School District

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* Hancock Central School District (footnote 6)

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Hewlett-Woodmere Union Free School District

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Hornell City School District

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* Hudson Falls Central School District (footnote 6)

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Huntington Union Free School District

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Kings Park Central School District

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Lackawanna City School District

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* Lansingburgh Central School District (footnote 6)

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* Le Roy Central School District (footnote 6)

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Lyme Central School District

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Lyndonville Central School District

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* Monticello Central School District (footnote 6)

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Morristown Central School District

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Mount Pleasant Central School District

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Mt. Pleasant-Blythedale Union Free School District

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* New Rochelle City School District (footnote 6)

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* New York Mills Union Free School District (footnote 6)

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* Niskayuna Central School District (footnote 6)

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Onondaga-Cortland-Madison BOCES

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Orleans Niagara BOCES

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Parishville-Hopkinton Central School District

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* Port Jefferson Union Free School District (footnote 6)

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Potsdam Central School District

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Ripley Central School District

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Roosevelt Union Free School District

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St. Francis de Sales School for the Deaf

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Salmon River Central School District

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* South Huntington Union Free School District (footnote 3)

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State Education Department Follow-up Report on School District Compliance with RESCUE Act Provisions for Building Assessment and Planning (2009-F-19) (footnote 8)

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* Technical Career Institutes (footnote 7)

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Thousand Islands Central School District

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Union Springs Central School District

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Wallkill Central School District

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* Wantagh Union Free School District (footnote 5)

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* Warrensburg Central School District (footnote 6)

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* Waterloo Central School District (footnote 6)

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* Watervliet City School District (footnote 6)

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* Waverly Central School District (footnote 6)

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* Webster Central School District (footnote 6)

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West Irondequoit Central School District

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* Westbury Union Free School District (footnote 6)

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Western Suffolk BOCES

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* Wyandanch Union Free School District (footnote 6)

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New York City Office of the Comptroller

* New York City Department of Education (footnote 2)

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November 2009

21

1

9

20

17

13

16

1

12

4

4

1

27

* Other:

1

Board Fiscal Oversight

2

Early Grade Class Size Reduction Funding

3

Fiscal Oversight Training

4

Five Point Plan

5

Not-for-Profit Relationships

6

Nutrition

7

Tuition Assistance Program

8

Maintain Building Structures

May 2007 - June 2008

September 2008

October 2008

November 2008

December 2008

January 2009

February 2009

March 2009

April 2009

June 2009

September 2009

November 2009

Running Total

Procurement

108

35

6

6

8

13

16

7

4

8

26

21

258

Capital Assets

18

1

0

0

0

0

0

0

0

0

0

1

20

Claims Processing

120

16

3

7

5

3

8

2

1

3

9

9

186

Payroll

122

24

5

7

10

12

11

1

1

4

16

20

233

Cash

96

21

4

4

5

5

13

2

1

3

14

17

185

Financial Reporting

70

15

3

8

5

8

11

5

2

7

17

13

164

Information Technology

109

25

6

11

11

10

12

6

3

5

24

16

238

Capital Construction

5

0

0

0

0

0

0

0

0

0

0

0

5

Extraclassroom Activity Fund

7

6

1

1

1

1

0

0

1

0

3

1

22

Segregation of Duties

54

6

2

2

1

1

2

1

0

0

6

12

87

Budgeting

16

1

1

0

1

1

0

1

0

6

1

4

32

Conflict of Interest

12

4

1

1

3

1

3

0

0

0

5

4

34

Fingerprinting

6

0

1

1

1

2

0

2

0

0

3

1

17

Other

14

19

4

17

1

23

5

1

3

6

21

27

141

Total

757

173

37

65

52

80

81

28

16

42

145

145

1,621

Office of Audit Services

Audit

Major Finding(s)

Recommendation/Response

Western New York Regional School Support Center (Erie I BOCES)

For the Periods July 1, 2004 through June 30, 2007

BOC-1207-2

8th Judicial District

$22,116 adjustment

Reimbursement for indirect costs was claimed using an incorrect rate in one year, applying the rates to budgeted rather than actual costs, and using a direct cost base that included ineligible costs. As a result, Western New York Regional School Support Center (RSSC) was over-reimbursed by $22,116.

Additionally, one person was incorrectly categorized as an employee who should have been treated as a consultant, and some hourly employees did not sign time work records to ensure correctness or note work start and end times.

Supporting documentation for expenditures did not always include lists of participants and agendas where appropriate, and the method used to allocate expenditures between programs was not always documented.

Finally, Western New York RSSC was not in compliance with some provisions of the Contract with SED.  Support from New York State was not always acknowledged where appropriate, contracts were not always in place when needed and before services were rendered, and travel guidelines in effect for New York State Management/Confidential (MC) employees were not always followed.

15 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding internal controls, contract payments, and contract compliance.

The BOCES agreed with the recommendations specifically pertaining to budgeted rates and submitting vouchers; identifying individuals as incidental employees or consultants; time sheet verification for employees; expenditure documentation; purchasing; and recording locations of items purchased.

The BOCES disagreed with the recommendations pertaining to travel guidelines.

The BOCES agreed to implement corrective action to address the remainder of the recommendations.

Office of the State Comptroller

Audit

Major Finding(s)

Recommendation/Response

Alfred-Almond Central School District

Internal Controls Over Selected Financial Operations

2009M-133

8th Judicial District

The board of education did not appoint a claims auditor in accordance with Department regulations. The Board contracted with the Greater Southern Tier (GST) BOCES Central Business office (CBO) for claims auditor service for the 2007-08 and the 2008-09 fiscal years.  During this time, the District paid over $1.1 million to the GST BOCES for other services provided.

The claims auditor also did not always ensure that claims submitted for approval payments against the Model Transition Program (MTP) grant were in accordance with the District adopted policies. Nearly all of the 35 claims tested lacked required documentation.

Finally, the District has not adopted a formal disaster recovery plan, effectively secured the server room or established policies and procedures for remote access or data back-ups.

8 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the appointment of a claims auditor, program expenditures, supporting documentation for claims, establishing a formal disaster recovery plan, user access permissions, and the security of the server room.

The District agrees with the recommendations in the report, and has agreed to implement corrective action in order to enhance the internal financial controls.

Altmar-Parish-Williamstown Central School District  Financial Management and Internal Controls Over Payroll

2009M-96

5th Judicial District

The District’s financial and budgetary reporting procedures were not adequate for purposes of properly monitoring the District’s finances and accurately determining its overall financial condition. The District incurred operating deficits of approximately $500,000 and $600,000 for 2005-06 and 2006-07, respectively. The combined deficits of over $1 million reduced the District’s unreserved general fund balance, to just $71,095 at the start of the 2007-08 fiscal year, or just .28 percent of that year’s budgeted appropriations.

During 2007-08, the District was forced to rely on short-term obligations to finance operations and alleviate cash flow difficulties. The District issued a budget note to finance $850,000 of additional appropriations and a $3 million revenue anticipation note, in anticipation of State aid to be received later in the year.

The report found that the District’s financial records were not up-to-date, and District officials had no way to determine the District’s financial condition. District officials projected late in 2007-08 that the District would end the year with a significant deficit. These projections proved to be widely inaccurate, and the District actually finished the year with a surplus.

The District reported an Employee Benefit Accrued Liability Reserve (EBALR) balance of $1.1 million as of June 30, 2008. Instead of using the money in the reserve, the District has been budgeting and paying for these expenses out of its operating fund. The District’s EBALR is overfunded by approximately $970,000.

The District developed and spent a significant amount of money on a long-term capital plan that did not fit its needs, and thus expended $1.3 million on architect, surveying, and engineering fees for an abandoned project.

Finally, duties are not adequately segregated over the payroll process, nor is there independent oversight of the payroll process.

8 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial management and payroll.

The District had indicated that it agrees with the substance of the audit findings, but is concerned with the draft report, in that it does not fully discuss corrective actions that were in progress at the time of the audit or the significant improvements in internal controls that were in place at the conclusion of the audit. The District disagreed with comments regarding the oversight of the payroll process, and overestimating revenues.

The District will implement corrective action to address the remainder of the recommendations.

Arlington Central School District

Cost Savings and Extra- Classroom Activity Fund

2009M-137

9th Judicial District

(Contract for Excellence District)

The District could have improved certain areas of their District operations by performing its check printing function in-house. By doing this, the District could have realized an estimated cost savings of up to $405,000 for the three-year period from 2006-07 through 2008-09.

Additionally, the District did not administer extra-classroom activity fund moneys in accordance with the Regulations of the Commissioner of Education.  As a result, we found control weaknesses in the receipts and disbursements received. One hundred seven cash receipts (totaling $191,211) were reviewed, and there were exceptions found with 104 of the receipts. All 100 disbursements reviewed (totaling $87,897) had exceptions. The board of education’s extra-classroom activity fund policy is not enforced, and has not been updated since 1995.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cost savings, and the extra-classroom activity fund.

The District strongly disagreed with the analysis criticism and conclusions of the Mid-Hudson Regional Information Center (MHRIC) check processing services. The District believes that the cost/benefit analysis is inaccurate, insufficient, and incorrect. In addition, the District believes the criticism of the Arlington Central School District is misplaced.  The District has agreed to implement the recommendations.

Barker Central School District

Internal Controls Over Financial Condition and Student Transportation Services

2009M-109

8th Judicial District

The District has accumulated more than $1.1 million that should be used to benefit taxpayers. District officials did not prepare reasonable budgets for the 2004-05 through the 2007-08 fiscal years. As a result, the District generated operating surpluses (totaling $6.9 million), during this period. Additionally, the Employee Benefit Accrued Liability Reserve (EBALR) is over-funded by almost $200,000. The District also overstated its reserve for encumbrances by approximately $548,000 and $648,000 at June 30, 2007 and June 30, 2008, respectively.

Further, the transportation vendor over-billed the District by $33,000; however, the vendor had indicated that he will refund the District approximately $16,900 for disproportionate rates associated with two of the District’s shared service routes. To date, the transportation vendor has reimbursed the District a total of $6,000.

Finally, the contracts did not always appropriately address the services that are currently being provided. The business office was also not ensuring that invoices were accurate or verifying that the services were indeed provided to the District.

10 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the District’s financial condition, and student transportation services.

The District agreed with the recommendations, and have indicated that they have already implemented corrective action in most cases.

Bemus Point Central School District

Policies and Procedures

2009M-76

8th Judicial District

The policies and procedures established by District officials over purchasing, cash disbursement, and inventory functions are either not appropriately designed, or not operating effectively. Neither the business administrator nor the accounts payable clerk’s duties are properly segregated, and there is no policy notifying vendors that District purchases can be made only through the use of approved purchase orders.

Eight vouchers (totaling $66,896) were reviewed, and while there were no instances of abuse or loss, some of the vouchers were made by unauthorized individuals without receiving prior approval from the superintendent. Additionally, some of the items were not properly recorded in the District’s inventory records and were not assigned an asset tag or location. There were also other weaknesses involving the District’s inventory records, including lack of consistency.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the purchasing, cash disbursement, and inventory functions.

The District agreed with the recommendations specifically pertaining to policies and procedures within purchasing, cash disbursement, and inventory functions, as well as ensuring that employees comply with these policies.

Brookhaven-Comsewogue Union Free School District  Internal Controls Over Selected Financial Operations

2009M-106

10th Judicial District

The board of education’s contract with the former superintendent contained unusual provisions that increased his separation payments, and also his annual pension payment significantly beyond what other school districts provide. As a result, the former superintendent received a total of $739,000 in separation payments the year he retired. These payments were $414,000 to $693,000 greater than he would have received if his employment contract was similar to superintendent contracts found in comparable districts.

Further, District personnel acquired professional services totaling $695,973 during our audit period without using a competitive process.

The District does not have written policies and procedures to govern the use of gasoline purchase cards, which were used during our audit period to purchase $24,814 of fuel.

Finally, the Board has not adopted policies and procedures to monitor remote access or to ensure that changes to access accounts are documented and that user accounts are deactivated in a timely manner. A disaster recovery plan has also not been implemented by the District.

6 recommendations

The report’s recommendations focused primarily on strengthening policies and procedures regarding separation payments, procurement, and computerized data safeguards.

The District agreed with the recommendations and has indicated that they have already implemented corrective action to address many of the recommendations.

Carle Place Union Free School District

Internal Controls Over Selected Financial Operations

2009M-149

10th Judicial District

According to the assistant superintendent for business, the District’s excess Employee Benefit Accrued Liability Reserve (EBALR) funds ($2.6 million) were intended to pay for other post employment benefits, which is not a permitted use of EBALR moneys. The District also had not allocated the interest earned on EBALR moneys to the EBALR, as required by law. Instead, EBALR interest earnings have been improperly added to the general fund. EBALR’s interest earnings for 2001-02 through the 2007-08 fiscal years totaled approximately $600,000.

Duties were also not properly segregated in the business office. The District treasurer who also serves as an accountant in the business office, performs several incompatible duties.

4 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the EBALR, and the segregation of duties in the business office.

The District agreed with the findings, and as required, a corrective action plan will be submitted within the appropriate timeframe.

Cattaraugus-Little Valley Central School District

Internal Controls Over Selected Financial Operations

2009M-51

8th Judicial District

The board of education has not appropriately complied with four of the Five Point Plan’s requirements, and as a result has not demonstrated a positive control environment. The board had not required all of its members to take mandatory fiscal training, did not appoint an audit committee consisting of eligible members, and did not prepare a corrective action plan on findings contained in the District’s annual external audit report. In addition, the internal auditor appointed by the board was not independent. The board’s lack of commitment in complying with the Five Point Plan sets the wrong “tone at the top.”

The District had an unreserved, unappropriated general fund balance that was more than twice the amount allowed by law, while still continuing to increase tax levies.

Further, the board did not ensure that policies and procedures for extraclassroom activity (ECA) cash receipts were followed.

Internal controls over information technology were also not appropriately designed and operating effectively.

11 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the Five Point Plan, financial condition, ECA cash receipts, and information technology.

The District responded to the audit by indicating they had taken corrective actions to correct many of the areas detailed in the audit.

Cheektowaga-Maryvale Union Free School District

Internal Controls Over Purchasing

2009M-145

8th Judicial District

District officials developed the Procurement Guidelines Policy, but there is no evidence that the board of education recently reviewed the District’s policies and procedures. District officials also have not monitored purchasing activity for compliance with established policies and procedures.

Forty-six purchases (totaling $343,235) were reviewed to determine if the District had complied with the provisions of its purchasing policy. Forty-one of the forty-six purchases examined, required the preparation of a requisition, however, none of the 41 complied. Further, of the 46 purchases tested, 35 lacked documentation to indicate that the District complied with its procurement policy and General Municipal Law. The purchases were not supported by evidence of quotations or bidding.

The District also paid significantly more for certain items than it would have, had they been purchases through readily available OGS or BOCES sources, or obtained quotes as required. For the six items tested, $16,258 in possible savings was identified.

3 recommendations

The report’s recommendations focused primarily on strengthening policies and procedures regarding internal controls over purchasing.

The findings and recommendations have been discussed with District officials, and they were given the opportunity to respond to the findings within 30 days of the exit conference, but they did not do so. The District generally agreed with the findings and recommendations and indicated that they plan to take corrective action.

Chester Union Free School District

Internal Controls Over Selected Financial Activities

2009M-157

9th Judicial District

The District retained $389,065 of fund balance in excess of the amount allowed by law in the 2007-08 fiscal year budget. The excess funds were also not used to benefit taxpayers.

Further, the District had $906,401 in deposits during September 2008, which exceeded the FDIC protection limit, and was not insured.

Items purchased from three out of four vendors reviewed (totaling $91,546), were not bid in accordance with District policy. Additionally, the purchasing agent did not always obtain written quotes as required by District policy. 

Finally, 32 employees who left District employment for extended periods of time, still had unauthorized access to the IT system. A formal disaster recovery plan for the District had also not been implemented.

6 recommendations

The reports recommendations focused primarily on strengthening the policies and procedures regarding excess funds, deposits, purchasing policies and procedures, and District IT access.

The District disagreed with the finding related to fund balance excess not being used to benefit the taxpayer.

The District has indicated that they will make the necessary adjustments to strengthen the District’s fiscal operations and will implement the recommendations as soon as possible.

Clinton-Essex-Warren-Washington BOCES - Internal Controls Over Selected Financial Activities

2009M-58

4th Judicial District

BOCES did not maintain the Employee Benefit Accrued Liability Reserve (EBALR) or unemployment insurance reserve in accordance with statutory requirements. The chief fiscal officer did not furnish financial reports to the BOCES Board when required, and reserve funds totaling more than $1.15 million have been used for purposes that were not statutorily authorized. As of June 30, 2008, the EBALR had $329,487 more than necessary to meet its obligations for compensated absences and the unemployment insurance reserve had $348,411 more than necessary to meet its obligations to cover unemployment claim expenditures. This amount is enough to cover unemployment claim expenditures for more than 26 fiscal years. As a result, the component districts, which are significantly funded by taxpayers, have paid more than necessary to fund BOCES operations.

The internal audit function was not performed in accordance with the Education Law and contract requirements for the 2006-07 and 2007-08 fiscal years. Despite this, the BOCES Board reappointed and entered into another contract with the same individual for the 2008-09 fiscal year.

BOCES officials did not have comprehensive written policies and procedures to provide guidance and internal controls over payroll processing and leave time accruals. BOCES officials also did not segregate duties and compensating controls were neither in place, nor operating effectively. The salaries for three employees were miscalculated, resulting in the employees being underpaid $5,514 for the 2007-08 fiscal year, and would have resulted in the employees being underpaid an additional $6,647 during the 2008-09 fiscal year if BOCES had not been notified of the miscalculations.

Cash receipts at the departmental level also were not collected in accordance with the board’s established policy and procedures. Cash receipts that were remitted to the business office were not supported by appropriate documentation for all six of the departments that were reviewed, and cash handling and recordkeeping duties were not adequately segregated. Finally, cash receipts (totaling $6,155) were not deposited until 12 days or more from the date the funds were received.

18 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding reserve funds, the internal audit function, payroll, and cash receipts and disbursements.

BOCES agreed with the recommendations specifically pertaining to reserve funds; underpaid employees; internal controls and the internal audit function; the treasurer’s duties; and disbursements being made under the authority of the treasurer.

Delhi Central School District

Internal Controls Over Selected Financial Operations

2009M-104

6th Judicial District

Because the alternate claims auditor for 2008-09 was a board of education member’s spouse, 60 claims were tested (totaling $1 million) to ensure that the claims were proper and supported. There were no material discrepancies found.

District personnel also did not fully comply with Education Law and the board-adopted policy regarding the conduct of criminal history checks including the fingerprinting of prospective employees.  District personnel did not ensure that a clearance/conditional clearance for employment was received from SED for 3 of the 16 employees prior to being employed by the District. District officials also stated that they did not have procedures in place to ensure that independent contractors and their employees undergo a criminal history check including fingerprinting prior to providing services to the District.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the appointment of the claims auditor and criminal background checks.

The District is in general agreement with the findings and recommendations.

DeRuyter Central School District

Internal Controls Over Selected Financial Operations

2009M-134

6th Judicial District

The duties of the District treasurer are not properly segregated, and the treasurer is not performing timely bank reconciliations. The business administrator is also able to make internal electronic and wire transfers of funds without confirming authorization from another employee.

The audit disclosed payments totaling $18,700 for additional salaries that were based on memos issued by various past and present District administrators and were paid without any documentation of board of education approval.

9 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the treasurer’s operations, and compensation paid without Board approval.

The District has agreed with the findings of the report and has indicated that they have already worked to correct many of the issues presented, and will work to address the remaining concerns.

Dryden Central School District

Internal Controls Over Selected Financial Operations

2009M-103

6th Judicial District

The business manager did not adequately segregate duties for the cash receipts and payroll processes, or implement sufficient compensating controls. The business manager has tried to resolve the segregation of duties issue, but the new procedures do not provide for her to adequately do so. The payroll clerk also performed all aspects of the payroll process, including adding and deleting employees, changing pay rates, processing payrolls, and printing and distributing paychecks.

Additionally, District officials did not protect the District’s financial management system. The business manager had administrator rights, which was not necessary to perform her job duties. Audit log reports were not generated or reviewed because no one was assigned this responsibility.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the segregation of duties.

The District agreed with the recommendations pertaining to the segregation of duties of the business manager, cash receipts, access to the financial software, and audit log reports.

The District had agreed to implement corrective action to address the recommendations.

Ellenville Central School District

Fund Balance and Internal Controls Over Selected Financial Activities

2009M-111

3rd Judicial District

The District’s general fund liabilities, reserve for encumbrances, and fund balance were not properly reported. This improper report resulted in an understatement of the general fund’s fund balance by more than $8.2 million. The District also had an unreserved, unappropriated general fund balance at June 30, 2008 of $2,138,859 which exceeded the 4 percent allowed by law.

Additionally, formal policies and procedures concerning the electronic transfer of funds were not implemented and the treasurer and payroll clerk made wire transfers and payroll direct deposits without formal approval or confirmation.

There were also weaknesses in internal controls over payroll because the District did not have properly written procedures, or adequate contract language relating to payment of longevity awards. Further, overtime payments were not always supported by time cards and longevity calculations not supported by contracts.

The District’s purchasing policy over goods and services was not consistently followed, which resulted in purchases totaling $28,200, which lacked quotes required by policy.

Finally, there were weaknesses in the District’s information technology controls relating to policies and procedures, third-party access and disaster recovery planning.

12 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding fund balance, cash disbursements, payroll processing, purchasing policies over goods and services, and information technology.

The District disagreed with the findings related to the support for all accruals and reservations of fund balance to ensure that they are properly recorded and reported. The District also disagrees that the Retiree Health Insurance for 2006-07 and 2007-08 were $4,002,150 (9.26%) of the 2008-09 general fund appropriations. The District disagreed with the finding that Real Property Taxes were $314,434 (7%) of the 2008-09 general fund appropriations for the 2008-09 school year.

The District agreed with the remainder of the findings, and has indicated that they will implement corrective action to strengthen its current practices in order to meet all appropriate legal and contractual recommendations.

Fayetteville-Manlius Central School District  Internal Controls Over Selected Financial Activities

2009M-153

5th Judicial District

District officials did not ensure that employees always followed competitive bidding requirements, and as a result, payments to nine vendors (totaling $242,970) were tested. It was found that the District made three purchases ($59,987) without bidding. The District also made payments to six professional service providers ($165,069) without soliciting competition. The District also did not enter into written agreements with two of the six professionals, who were paid $51,307. Fourteen payments to vendors were also reviewed ($107,437) for purchases of goods and services, and it was found that the purchasing agent did not ensure that the District solicited the required price quotations for six of these vendors.

Internal controls over the cash receipt process also need to be improved. Two business office employees do not have a proper segregation of duties, and the recordkeeping and cash handling functions for health insurance contributions are also not properly segregated.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding purchasing, cash receipts, and the proper segregation of duties in the business office.

The District agreed with the recommendations and has indicated that they will implement all of the recommendations to further improve and strengthen fiscal operations.

Friendship Central School District

Internal Controls Over Selected Financial Operations

2009M-82

8th Judicial District

District officials established an unauthorized other post-employment benefits (OPEB) insurance reserve fund and classified a portion of its general fund balance as such. However, there is no statutory authority for this reserve. If the District had properly classified the funds, the unreserved, unappropriated fund balance would have been reported as $710,656, which is more than twice the amount allowed by law.

It was also found that, while the District had established procurement policies, it failed to include guidelines for selecting professional service vendors. As a result, the District paid over $565,000 for consulting services, without the benefit of requests for proposals.

Further, BOCES employee serving as the internal auditor is not independent in performing the internal audit function. The District budgeted to spend approximately $2.2 million on services provided by BOCES for the 2008-09 year.

Internal controls over cafeteria operations were not appropriately designed or operating effectively. One person was assigned incompatible job duties, which allowed for an increased risk that cafeteria receipts could be misappropriated or remain undetected.

10 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the OPEB insurance reserve fund, procurement policies and the selection of professional service vendors, the duties of the internal auditor, and cafeteria operation and receipts.

The District has agreed with the recommendations, and has indicated that they will implement corrective action in order to benefit the District and its taxpayers through the strengthening of the District’s financial operations.

General Brown Central School District

Internal Controls Over Purchasing

2009M-123

5th Judicial District

The board of education has not set dollar limits for obtaining written or verbal quotations, nor has it determined the number of quotes to be obtained, or the documentation that should be retained to show compliance with purchasing policies.

Ten contracts (totaling $558,051) were reviewed for compliance with competitive bidding requirements, and it was found that District officials did not comply with General Municipal Law’s competitive bidding requirements or Office of General Services (OGS) contract requirements for three of the contracts (totaling $50,106).

4 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures over purchasing.

The District agreed with the recommendations specifically pertaining to the District procurement policy, competitive bidding, OGS contracts, and contract awards.

Glen Cove City School District

Internal Controls Over Selected Financial Activities

2009M-124

10th Judicial District

Two of the seven board of education members did not obtain the required six-hour training on financial oversight, accountability, and fiduciary responsibilities. A third Board member did not obtain the training within the first year of his election, although he completed the required training 29 months later. This lack of commitment to improving their governance skills sets the wrong “tone at the top”.

The District reimbursed three employees a total of $12,556 for waiving their rights to participate in the District’s health insurance plan. However, District officials did not have Board authorization granting this benefit to the three employees. Key duties related to payroll processing were also not segregated.

Payments to 19 vendors ($107,574) were tested, and it was found that District officials did not obtain the required number of quotes for seven of the procurements ($46,328).

The treasurer’s signature disk is not password protected, and payroll and accounts payable checks are printed without the treasurer’s supervision.

Finally, District officials have not tested or restored data on backup tapes to ensure the integrity of the data.

11 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding Board fiscal oversight, payroll processing and health insurance plan regulation, procurement and obtaining quotes, the treasurer’s signature disk and printing checks, and the restoration of data on backup tapes for protection.

The District has indicated that the recommendations have been reviewed, agreed upon, and the appropriate actions have been implemented accordingly.

Granville Central School District

Internal Controls Over Selected Financial Operations

2009M-128

4th Judicial District

The District did not adequately segregate duties over the financial operations of the business office. The business manager had complete control over District fiscal activities with little oversight of her work. Fifteen transfers (totaling $1.9 million), 46 paid claims (totaling $127,624), and 20 cash disbursements (totaling $30,291) were tested to determine if there were any inconsistencies. No significant exceptions were found.

The board of education did not adopt written payroll policies, and District officials did not establish written procedures, so the payroll clerk developed and implemented her own informal procedures. Additionally, District officials did not have a system in place to track the accrual and use of compensatory time. The duties of the employees involved in the payroll process were also not adequately segregated. There were, however, no significant exceptions found when payroll and compensatory time records were reviewed.

Finally, the District paid $5,014 for services in 2007-08, and $6,423 in 2008-09 to a printing company owned and operated by the spouse of a member of the board.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the business office, payroll, and conflicts of interest.

The recommendations pertained specifically to the review and segregation of duties within the business office, the assignment of administrative rights in the financial accounting software to someone independent, the adoption of written policies and procedures and adequate segregation of duties in payroll. The recommendations also regarded the implementation of controls to ensure that the District does not enter into prohibited contracts with District officers or employees.

The District indicated they would address the recommendations through the required corrective action plan.

Hewlett-Woodmere Union Free School District

Internal Controls Over Selected Financial Operations

2009M-88

10th Judicial District

The District reserved $10.1 million more in its Employee Benefit Accrued Liability Reserve (EBALR) Fund than its liability for compensated absences. The District did not always use the EBALR funds to pay employees for compensated leave benefits; instead they used general fund appropriations.

There were also weaknesses in internal controls over the District’s process for classifying workers whom the District enrolls in the Retirement System. The District improperly classified an independent contractor as an employee and improperly enrolled this individual  in the Retirement System.

The District did not provide sufficient oversight over its Department of Community Services. The District did not implement adequate controls to protect cash receipts, and the duties of collecting and recording cash were not segregated. Duplicate, pre-numbered receipts were not issued to payees when collecting cash for the adult education and summer recreation programs, and discounts or credits were applied without adequate approval by the board of educaton.

The treasurer does not have adequate oversight over signed checks, and the treasurer signed 1,286 hand-drawn checks (totaling $5.9 million) during the audit period. These checks were mailed to the payees prior to the related claims being audited and approved by the claims auditor.

Five departments collected a total of $726,491 in the 2006-07 fiscal year; however, no duplicate pre-numbered receipts were issued to payees when cash was collected. Eighteen out of twenty-six deposits that were tested (totaling $30,483) were deposited in the District’s bank account between 10 and 49 days after the District’s deposit form was completed and submitted to the treasurer.

District officials did not segregate the function of the financial software administrator from the function of the individuals responsible for accounting operations in the business office, and there is not a formal disaster recovery plan in place.

Finally, the auditors compared the District’s administrative staffing level and costs with those of three neighboring districts. The District maintained higher administrative levels and paid higher salaries to their administrators, which resulted in the District incurring about $1.5 million in higher administrative costs over the two years reviewed, or about $750,000 annually.

21 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the EBALR fund, administrative costs, classification of an independent contractor, Department of Community Services, treasurer’s operations, cash receipts, and information technology.

District officials agreed with many of the findings and recommendations in the report and indicated they plan to initiate, or have already initiated corrective action. In regard to the EBALR, the District acknowledged, including other post employment benefits (OPEB) in the reserve, having no other reserve to use at the time. The District encourages the Comptroller’s efforts to support legislation to create an OPEB reserve. District officials also pointed out that the attorney mentioned in the report was separated from the District in June 2006. Subsequent arrangements for all legal services are on a contractual basis.

Hornell City School District

Internal Controls Over Selected Financial Activities

2009M-119

7th Judicial District

For the period July 1, 2007 through February 28, 2009, the board of education appointed a claims auditor from the BOCES, and the District spent approximately $5 million for BOCES services during the 2007-08 fiscal year. The District’s significant payments to the BOCES results in an independence impairment for the claims auditor, who, as a BOCES employee, is approving District payments to her employer.

Additionally, the District’s internal controls over wire transfers were not adequately designed and operating effectively.

3 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the appointment of a claims auditor in accordance with SED standards, and the proper implementation of controls over wire transfers.

The District has agreed with the findings and had indicated that they have already implemented corrective action to address the majority of the recommendations.

Huntington Union Free School District  Computer Access Controls

2009M-113

10th Judicial District

A user access report that listed the District’s financial accounting system’s 75 active users, was reviewed in order to determine whether or not the District assigned access rights in accordance with job descriptions. From this review it was found that an accounting firm was inappropriately assigned a user account with the ability to add, update, and delete data in the budget maintenance area. It was also found that eight business office employees had access to aspects of the accounting system that were not required as part of their job functions.

1 recommendation

The report’s recommendation stated that District officials should continue to review and revise user access rights to the financial software in accordance with job descriptions to ensure that users have access only to functions necessary to perform their responsibilities.

In their corrective action plan included in the report, the District stated that as of February 2009 all issues regarding computer access controls in the financial software that were pointed out by the auditors were resolved. The District will continue to improve upon the financial software for the future.

Kings Park Central School District

Internal Controls Over Payroll

2009M-70

10th Judicial District

The policies and procedures established by District officials over purchasing, cash disbursement, and inventory functions are either not appropriately designed, or not operating effectively. The business administrator nor the accounts payable clerk’s duties are properly segregated, and there is no policy notifying vendors that District purchases can be made only through the use of approved purchase orders.

Eight vouchers (totaling $66,896) were reviewed, and while there were not instances of abuse or loss, some of the vouchers were made by unauthorized individuals without receiving prior approval from the superintendent. Additionally, some of the items were not properly recorded in the District’s inventory records and were not assigned an asset tag or location. There were also other weaknesses involving the District’s inventory records, including lack of consistency.

8 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding payroll.

District officials generally agreed with the recommendations and have indicated they have taken, or plan to take corrective action.

Lackawanna City School District

Internal Controls Over Financial Operations

2009M-73

8th Judicial District

The board of education did not take corrective action as required by its policy to address control weaknesses identified by the internal auditor’s risk assessment report, and did not ensure that the District’s audit committee properly reviewed the report and presented it to the Board in a timely manner. The Board also did not act on the recommendations of a paid education consultant, and did not fulfill its responsibilities to establish, communicate, and/or monitor the implementation of policies and procedures in key financial areas.

The Board allowed the District’s finance consultant to use calculation methodologies that were not properly documented or contractually supported for $169,000 in separation payments made to four employees. The District also did not request documentation to justify questionable leave usage by seven of ten employees tested, resulting in possible overpayments totaling up to $28,000, and did not consistently enforce contractual vacation carry-over limits or approvals.

Further, of 25 claims paid to 12 vendors, the District did not comply with competitive bidding requirements for 15 purchases from eight vendors (totaling $191,487). Of 22 claims paid to 15 vendors, 14 payments (totaling $48,252) were paid without the use of competition, and 3 purchases (totaling $33,872) had only one price quote.

Finally, the Board had no direct interaction with its appointed claims auditor, did not provide proper guidelines or training, and did not require formal claims audit reports. Of 132 paid claims received, 113 claims (totaling $675,487) had one or more deficiencies in proper approvals for purchases and travel expenses, supporting documentation, evidence of receipt, and/or evidence of audit.

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the control environment, payroll processing, procurement, and claims processing.

The District has agreed with the recommendations, and action has already been taken on many of the recommendations suggested.

Lyme Central School District

Internal Controls Over Cash Receipts and Disbursements

2009M-125

5th Judicial District

The policies which were implemented for the duties of the teasurer, signatures on checks, and for the teasurer’s bond are inadequate because they do not provide sufficient guidance on internal controls over cash receipts and disbursements for personnel to follow. This includes guidance for the segregation of duties, and issuing receipts. The business office does not issue pre-numbered receipts because the account clerk handles most cash receipts duties and the treasurer signs checks without viewing certified warrants or payrolls.

Further, special aid debt and debt service activity is also not fully entered into the computerized accounting system in a timely manner.

Finally, checks totaling $270,250 were not audited by the claims auditor, and payroll payments totaling $73,010 were not certified by the former superintendent.

8 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash receipts and disbursements.

The District is in agreement with the findings and recommendations contained in the report. The audit response and corrective action plan will be sent upon board of education approval.

Lyndonville Central School District

Internal Controls Over Payroll

2009M-79

8th Judicial District

Internal controls over payroll are not appropriately designed and operating effectively to adequately safeguard District assets. There are 12 benefit agreements in place for non-union employees; however, the board of education did not ensure that the agreements define the compensation guidelines and fringe benefits to which employees are entitled, and the necessary documentation required to obtain certain fringe benefits.

This included payments in lieu of health insurance, where the benefit agreements do not specify the information that must be provided. Applications filled out for seven employees who received payments in lieu of health insurance (totaling $7,700) were reviewed. It was found that applications did not request, and employees did not provide, information as to whether they had a spouse who had family insurance through his or her place of employment.

Further, benefit agreements for full-time bus drivers contained ambiguous language relative to required work hours and compensation for other bus runs.

Finally, the District employed the same two physicians (father and son) for more than ten years to perform school physicals. The physicians were not members of the Retirement System and did not receive any benefits from the District. The annual salary notice failed to describe the working hours or any other expectations for these positions. The two physicians were also paid equally on a bi-weekly basis to provide physician services, but only one of the physicians has been providing the majority of the services.

4 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding internal controls over payroll, specifically pertaining to health insurance and other benefit agreements.

The District has agreed with the recommendations, and has indicated that they plan to implement corrective action as soon as possible, if they have not done so already.

Morristown Central School District

Internal Controls Over Non-Payroll Cash Disbursements

2009M-135

4th Judicial District

Internal controls over non-payroll cash disbursements were not adequately designed due to a lack of segregation of duties and oversight, and the treasurer’s failure to control the check signing process.

3 recommendations

The report’s recommendations focused on non-payroll cash disbursements, and the segregation of the treasurer’s duties.

The District has agreed with the recommendations contained in the report, and has indicated that corrective action has already been implemented to address the concerns.

Mount Pleasant Central School District

Internal Controls Over Selected Financial Activities

2009M-131

9th Judicial District

The District did not have an adequate purchasing policy, because the policy did not specify when the various forms of competition would be used. District officials did not seek competition for services provided by seven vendors, who were paid a total of $365,143.

Further, the former and current business administrators established credit accounts and allowed employees to do the same, without Board authorization. Credit card claims were processed and paid without proper documentation. As a result, the District paid approximately $253,596 for purchases which may not be legitimate.

Finally, an entity-wide security plan was not implemented for the District, and policies were not developed to classify the District’s data, prevent access to District servers, monitor remote access to the system, or safeguard data.

The report’s recommendations focused primarily on strengthening the policies and procedures regarding payments to vendors, the proper supporting documentation for credit card claims, and information technology security.

The District agreed with the recommendations and has indicated that many of the recommendations have already been implemented, or will be implemented as soon as possible.

Mt. Pleasant-Blythedale Union Free School District

Internal Controls Over Claims Processing and Construction Project Bidding

2009M-146

9th Judicial District

(Fiscal Concern District)

There were internal control weaknesses in claims processing and building project purchasing due to inadequate policies and procedures or the lack of adherence to them. Fifty claims were reviewed (totaling $493,000) and it was found that 32 claims (totaling $453,000) had not been audited before payment. None of the 23 warrants reviewed for the period of July 1, 2007 through May 4, 2009, were certified by the claims auditor and five of the warrants were not signed by the board of education. In addition, the claims auditor did not submit periodic reports to the board, as required.

The audit selected eight contractors who were paid a total of $577,600 between July 1, 2006 and April 6, 2009 to determine if they were selected through competitive bidding. Five of the eight contractors, who were paid a total of $342,000, were hired without competitively bidding.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding claims processing and construction project bidding.

The District generally agreed with the recommendations and indicated they plan on taking corrective action.

Nutrition in School Districts Across New York State

2009-MS-3

(Bethpage Union Free School District (S9-9-32), Brentwood Union Free School District (S9-9-46), Catskill Central School District (S9-9-38), Gates-Chili Central School District (S9-9-37), Hancock Central School District (S9-9-43), Hudson Falls Central School District (S9-9-29), Lansingburgh Central School District (S9-9-34), LeRoy Central School District (S9-9-41), Monticello Central School District (S9-9-42), New Rochelle City School District (S9-9-40), New York Mills Union Free School District (S9-9-31), Niskayuna Central School District (S9-9-28), Port Jefferson Union Free School District (S9-9-30), Warrensburg Central School District (S9-9-33), Waterloo Central School District (S9-9-36), Watervliet City School District (S9-9-27), Waverly Central School District (S9-9-44), Webster Central School District (S9-9-35), Westbury Union Free School District (S9-9-45), and Wyandanch Union Free School District (S9-9-39)

(Contract for Excellence Districts:  Brentwood UFSD, Lansingburgh CSD, Monticello CSD, Watervliet City SD, and Westbury UFSD)

(Fiscal Concern Districts:  Warrensburg CSD and Watervliet City SD)

(Fiscal Stress District:  Wyandanch UFSD)

3rd, 4th, 5th, 6th, 7th, 8th, 9th, and 10th Judicial Districts

Twenty school districts throughout New York State were audited to determine whether or not they were in compliance with the guidelines set by the federal Child Nutrition and Women, Infants, and Children (WIC) Reauthorization Act of 2004 (Reauthorization Act). The Reauthorization Act requires that districts participating in the National School Lunch Program (NSLP) adopt wellness policies to ensure that there is nutritional guidance for all foods, including competitive foods (such as snacks and beverages), offered on school campuses.

It was found that all districts had adopted wellness policies; however, the amount of direction provided by these policies differed. Ten of the twenty districts’ wellness policies lacked a required plan for measuring implementation, while sixteen districts had an active nutrition committee.

The review of the most recent SED reviews confirmed that all 20 school districts’ lunch programs provided students with healthy, well-balanced meals.

Four districts did not develop any guidelines in their wellness policies for competitive foods and beverages. Of the 16 districts that adopted such guidance, 12 districts did not fully comply with it. Testing revealed that only 109 of 160 competitive food items tested in these 16 schools met the district’s guidelines. Two Districts also did not comply with Department regulations since they offered certain competitive foods to students which are prohibited from sale prior to the end of the last scheduled meal period. Only four districts were in total compliance with regulations.

District guidelines for competitive food and beverage offerings were compared to the guidelines adopted by the Institute of Medicine (IOM). While the Districts are not required to follow the IOM guidelines, they are used as a comparative standard. Items available in the schools that failed to meet IOM guidelines, included chocolate shortcake, ice cream bars, cheddar and bacon flavored potato chips, and cherry pies.

8 recommendations in main report

129 recommendations in the 20 reports sent to districts

The report’s recommendations focused primarily on strengthening the policies and procedures regarding wellness policies and the selection of competitive foods and beverages offered to students on the districts’ premises. This includes amending local school wellness policies and the maintenance of an active nutrition advisory committee. The recommendations also pertained to the limitation of student access to prohibited competitive foods before the last meal period, monitoring competitive foods on the districts’ premises, and the consideration of limiting competitive foods and beverages available to students by adopting IOM standards.

Of the ten districts that responded, many of them generally agreed with the recommendations and indicated that they plan to implement corrective action. Those districts included Lansingburgh, Webster, Bethpage, Catskill, and New York Mills.

Warrensburg felt it would be benefical to develop a common standard of measure for determining nutritional guidelines, while Brentwood, Catskill, and Watervliet stated that they would like more guidance from the State in order to implement the recommendations.

Bethpage did not agree with the global report’s conclusion, and with one of its recommendations regarding the assurance that competitive foods and beverages offered to students always meet the standards set in their wellness policies and/or other established nutritional guidelines.

Port Jefferson did not agree with the recommendation regarding the measurement by IOM standards, and felt it was misleading to the public.

The school districts that responded have agreed to implement corrective action to address the recommendations.

Onondaga-Cortland-Madison BOCES  Reserve Funds and Claims Processing

2009M-102

5th Judicial District

The BOCES Board did not ensure BOCES’ compliance with statutory requirements for the apportionment of operating surpluses to BOCES component and participating districts, and did not establish policies and procedures for establishing and funding reserves. As a result, BOCES retained approximately $1 million of district moneys to fund BOCES reserves without clearly disclosing this information to BOCES. These allocations comprised 21 percent of BOCES total operating surplus for that year.

BOCES reserve (EBALR) was overfunded by $2,298,934 because BOCES had accumulated funds in this reserve to cover non-permissible costs for health insurance premiums for retirees. This reserve had a balance totaling approximately $420,000 as of June 30, 2008.

BOCES did not have a written job description for the claims auditor position. The manager of business affairs advised that two claims (totaling $41,831) be paid, despite the claims not having adequate documentation and the claims auditor previously requesting it. BOCES paid claims totaling $218,808 for this program during the audit period without the requested backup. BOCES also paid $7,822 for five insurance refund claims which were never audited or approved by the claims auditor.

8 recommendations

BOCES disagreed with the recommendations pertaining to the discontinuance of the EBALR, and the claims auditor position.

BOCES has agreed to implement all other recommendations accordingly.

Orleans Niagara BOCES  Internal Controls Over Selected Financial Activities

2009M-118

8th Judicial District

BOCES has not properly estimated certain budget appropriations and has used the resulting surplus to fund a trust account and various reserves. BOCES improperly restricts $7.7 million in this trust account. BOCES also did not fund reserves transparently, did not use the $1.5 million Unemployment Insurance Reserve in a fiscally prudent manner, and improperly funded the Career and Technology Education (CTE) Equipment Reserve.

Further, payments made to 17 service providers were tested, and it was determined that BOCES paid 15 providers $759,377 without seeking requests for proposals or competitive quotes.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the funding and use of reserves, and the procurement of services.

BOCES disagreed with the recommendations pertaining to the development of reasonable appropriation estimates for the annual budget, the funding of reserves, the transfer of monies in the trust and agency funds, the reduction of the unemployment insurance reserve, as well as appropriate documentation to support increases to the CTE Equipment Reserve and the adjustment of the balance. BOCES also disagreed with the recommendation regarding the monitoring of procedures to ensure that BOCES officials comply with purchasing policies and regulations.

BOCES did not indicate whether or not they would implement corrective action.

Parishville-Hopkinton Central School District  Internal Controls Over Payroll and Computerized Financial Application Systems

2009M-101

4th Judicial District

Internal controls over payroll processing were not appropriately designed. The District did not properly segregate the payroll clerk’s duties, and the treasurer did not maintain control of her electronic signature.

Additionally, the business manager is able to use and control many significant aspects of the financial software which creates the opportunity for her to manipulate and conceal inappropriate transactions.

3 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding payroll and the computerized financial system.

The District agreed to consider the recommendations as part of the corrective action plan.

Potsdam Central School District

Financial Condition

2009M-185

4th Judicial District

The District consistently underestimated revenues during the audit period, which resulted in excess fund balance. The District’s unreserved, unappropriated fund balance was in excess of the statutory limits for the 2003-04 through 2007-08 fiscal years. On June 30, 2009, the total fund balance was $1,223,133, which represented 4.7 percent of the budgeted appropriations for the fiscal year 2008-09.

In addition, the District had retained funds in excess of what it was legally allowed to retain for each of the previous four years. The unreserved, unappropriated fund balance exceeded the legal limit, ranging from $490,228 as of June 30, 2004, to $176,844, as of June 30, 2008.

The board of education was able to appropriate $660,000 in fund balance, and adopt a tax levy of $10,331,154. to fund 2009-10 operations, however, the remaining unappropriated fund balance at August 18, 2009, was $1,369,540, which is still in excess of the amount allowed by law.

1 recommendation

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the District’s excess fund balance and financial condition.

The District is in agreement with the findings on the financial condition as reported. The District’s current fund balance is above the legal limit of 4 percent of the subsequent year’s spending plan. The District will respond to the findings when the audit is determined final.

Ripley Central School District

Internal Controls Over the Timekeeping System

2009M-72

8th Judicial District

To replace punched time cards, the District purchased a biometric timekeeping system at a cost of $7,400 and began using it in April 2008.

The board of education has not established policies or related procedures for the processing of payroll or the use of the biometric timekeeping system. It is not ensured that time records are complete and accurate before the payroll clerk uses them to prepare the payrolls. There is also limited segregation of duties within the payroll process because the payroll clerk performs almost all aspects of the payroll function with little oversight by other District officials.

The testing of the system disclosed that employees were compensated and provided benefits as if they had worked the full amount of hours expected, even though the timekeeping system documented that, in many instances, the hours worked were much less than expected.

4 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the District’s timekeeping system.

The District agreed with the recommendations specifically pertaining to the implementation of procedures for the processing of payroll, including a requirement that employees use the timekeeping system, the business official’s review of the work performed by the payroll clerk, and the supervisors’ review of electronic employee time records. The District also agreed with the recommendation that the board of educaton should adopt policies to determine the appropriate level of health insurance benefits and determine what action should be taken when hours worked fall below expected levels. The District has agreed to implement corrective action where necessary.

Roosevelt Union Free School District

Fourth Quarter 2008-09 Budget Review

2009M-175

10th Judicial District

The District has a potential operating surplus of approximately $6.6 million for the year ending June 30, 2009. If this surplus is realized, the District will end the 2008-09 fiscal year with a projected accumulated fund balance of $21.1 million. District officials intend to reduce this available fund balance to  approximately $8.6 million by using $1.4 million in state grant money given to the district in 2007-08 to fund academic improvement programs; appropriating $2.5 million to finance 2009-10 operations; using $1.7 million to fund 2009-10 academic improvement expenses; allocating $3.95 million to establish and fund four reserve funds; and maintaining $3 million in the employee benefits accrued liability reserve fund.

There were also weaknesses in the District’s budgetary controls. Although the District’s budget transfer policy indicates that all transfers of more than $2,000 must be approved by the board of education, 16 journal entries (totaling $1 million) were found that reflected budget transfers, and 18 budget transfers (totaling $21 million) for debt service that were not included on budget transfer reports were not board approved prior to processing.

Finally, the District’s revised 2008-09 special aid fund budget was still not balanced as of June 30, 2009, and estimated revenues are less than budgeted appropriations by $94,667.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding budgeting.

The District specifically agreed with the recommendations pertaining to the unreserved, unappropriated, general fund balance, budget transfers, journal entries, academic improvement expenses funds, and special aid fund revenues.

The District has indicated that they plan to initiate corrective action.

St. Francis de Sales School for the Deaf  Selected Financial Management Practices

2008-S-160

2nd Judicial District

The School has not complied with applicable Department guidelines and has not used a competitive procurement process when purchasing goods and services; as a result, a significant amount of high-cost purchases have been made without the benefit of soliciting competition.

On occasion, original invoices and/or packing slips that accompany a purchased item have not been submitted as required, and the School does not always retain documentation in employee files to support salary changes and other payments. Further, the School paid cost of living adjustments to School employees in April and June 2008 (totaling $506,416) without formal approval by its board of trustees.  Duties in payroll were also not properly segregated.

Finally, the board has not ensured prompt implementation of the School’s external auditor’s recommendations to provide staff with a written accounting policy manual, or to review business office duties to ensure that they are properly segregated.

13 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight, procurement, cash disbursements, and payroll.

The School agreed with the recommendations and provided details regarding the actions taken to implement them.

Salmon River Central School District

Internal Controls Over Payroll

2009M-117

4th Judicial District

There were weaknesses in internal controls over the District’s payroll process. The board of education has not established an internal controls system that provides for adequate segregation of duties or management oversight for payroll processing and accounting for leave time accruals. Five employees were overpaid $23,533 for tutoring services, and errors in the accounting for 276.25 days of leave time, with a value of $68,300, have occurred without detection by the District.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding payroll processing.

The District agreed with the recommendations and planned to inititate corrrective action to address the recommendations.

South Huntington Union Free School District  Internal Controls Over Selected Financial Operations

2009M-97

10th Judicial District

Three of the seven board of education members did not complete the required six hours of training on fiscal oversight, accountability, and fiduciary responsibilities within the first year of their election, which set’s the wrong “tone at the top.”

The District’s internal auditor found that the life insurance coverage for these officials was not in accordance with their employment contracts. As a result, the District paid $66,609 in premiums for six split-dollar life insurance policies with face values totaling $2.8 million, which exceeded the coverage amounts allowed in their contracts by a total of $1.1 million. The District also paid supplemental life insurance premiums totaling $8,480 for the superintendent and two assistant superintendents, but only deducted a total of $4,536 from their paychecks for this fringe benefit; and deducted a total of $531 more than necessary from two other assistant superintendent’s paychecks for this benefit. The District took immediate corrective action by properly renegotiating the life insurance contract to provide for term-life insurance policies. The District is also receiving credits from the insurance company for the incorrect payments.

District officials did not always solicit competition for bids when required. As a result, the District paid five professionals a total of $519,554 without soliciting competitive proposals and paid two professionals a total of $218,597 without written agreements. The District paid a vendor $19,175 without soliciting competitive bids. The District has also used the same vendor for many years without soliciting bids, and paid this vendor $93,056. Business office employees also increased blanket purchase order amounts by a total of $220,900 without properly notifying the purchasing agent as required.

Finally, the District maintained a total of 38 user accounts in the financial software system, with little or no activity; and District officials did not review audit logs to detect these inactive accounts. The board also does not have a formal disaster recovery plan.

8 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding fiscal oversight training, fringe benefits, purchasing, and information technology.

The District generally agreed with the recommendations and indicated they plan to initiate corrective actions. District officials also indicated that board members identified as not having received required board training have subsequently received it.

State Education Department Follow-up Report on School District Compliance with RESCUE Act Provisions for Building Assessment and Planning  (2007-S-24)

2009-F-19

In 1998, the Rebuild Schools to Uphold Education (RESCUE) Act was established, in order to ensure that school districts are performing certain prescribed facility preservation and planning activities. The Commissioner of Education also developed corresponding regulations requiring districts to develop document plans for maintaining district properties. Districts are also required to complete regular inspections and evaluations of their school buildings, submit certain reports to SED and maintain other reports at the district. The Department’s Office of Facilities Planning (OFP) is responsible for the oversight of the RESCUE program.

The initial audit report, which was issued on April 10, 2008, determined that a significant proportion of the districts did not fully comply with the building assessment and planning requirements of the Act. For many districts, the non-compliance was material. OFP also needs to strengthen its efforts to monitor districts’ compliance with the Act.

It was determined from the follow-up report, that Department officials have made considerable progress in addressing most of the matters identified; however, additional actions are needed.

In the previous audit report, 12 recommendations were made, and four of them were found to have not been implemented. The district had not yet established written procedures for coordinating and monitoring the RESCUE program, mainly due to lack of resources. OFP also does not formally notify district boards of education when districts do not submit required RESCUE Act reports. Further, OFP officials advised that they have not requested school districts to provide a current list of occupied buildings. Finally, OFP officials do not identify or follow-up with districts that did not send representatives to training, to provide such districts with pertinent guidance and materials.

12 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the RESCUE Act.

Of the 12 prior audit recommendations to the State Education Department, five recommendations have been implemented, three have been partially implemented, and four recommendations have not been implemented.

The Department has not yet responded to the report.

Technical Career Institutes - Tuition Assistance Program 

2008-T-3

It was determined that the Technical Career Institutes was overpaid $593,302 because school officials incorrectly certified seven students as eligible for sixteen Tuition Assistance Program (TAP) awards. The accuracy of 15,988 TAP certifications the school awarded for the three-year period ended June 30, 2007 was tested by reviewing a statistical sample of 200 randomly-selected awards. From the sample, eight awards (totaling $17,640) were disallowed, which results in an audit disallowance of $578,843. Eight awards (totaling $14,459) were also disallowed based on the review of other awards from outside the statistical sample period. It is recommended that Higher Education Services Corporation (HESC) recover a total of $593,302 ($578,843 and $14,459) plus applicable interest, from TCI.

2 recommendations

The recommendation to the Higher Education Services Corporation was to recover the $593,302 plus applicable interest from TCI for its incorrect TAP certifications.

The recommendation to the State Education Department was to ensure that TCI officials comply with the State Education Department requirements relating to matriculation and good academic standing.

HESC states that the two disallowance areas are SED regulatory issues: Students Not in Good Academic Standing and Students Not Matriculated. As these matters involve the interpretation of SED regulations, HESC will defer to SED’s response.

Thousand Islands Central School District  Internal Controls Over Selected Financial Operations

2009M-99

5th Judicial District

A board of education member had a prohibited interest in the District’s contracts with three corporations and had not publicly disclosed his interest in these contracts. During the two-year period, July 1, 2006 to June 30, 2008, the District paid three private corporations collectively over $85,000 for purchases over various goods and services. The District indicated that other Board members were aware of the potential conflict of interest and that the Board member regularly abstained from voting on any Board decisions regarding the contracts with or payments to his companies.

The Board did not perform a proper audit of claims, and only reviewed computer generated warrant reports that list the claims; they did not review the actual claims and supporting documentation. As a result, 40 claims payments (totaling $116,391) were reviewed. It was found that four claims (totaling $2,957) were not adequately documented.

The superintendent does not require District staff to provide evidence of appropriate price quotes prior to approving purchases. Six purchases were reviewed (totaling $45,185), and the District could not provide documentation showing they received price quotes for three of the purchases.

Written policies and procedures for internal controls over cash receipts for post-employment health insurance benefits were also not properly established. The duties of the account clerk, were also not properly segregated.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding conflict of interest, claims audit, purchasing, and post-employment health insurance contributions.

The District agreed with the recommendations and will take the audit as an opportunity to improve current operations. The District will submit its corrective action plan in a timely manner.

Union Springs Central School District  Financial Condition and Intermunicipal Consolidation and Cooperation

2009M-110

7th Judicial District

The District has not taken adequate action to address the excessive fund balance in the general fund. As of June 30, 2008, the unreserved general fund balance totaled $1.3 million. However, District officials appropriated only $200,000 to reduce the tax levy. As a result, the general fund balance was almost twice the amount allowed by law.

The District has also taken some positive steps such as establishing a joint athletic agreement with the Southern Cayuga Central School District, which has provided the District with additional services at a reduced cost to the taxpayers.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the financial condition and consolidation and cooperation efforts.

The District generally agreed with the recommendations and indicated they have taken or planned to take corrective actions.

Wallkill Central School District

Internal Controls Over Selected Financial Operations

2009M-127

3rd Judicial District

The treasurer, assistant superintendent, and the purchasing agent can all authorize wire transfers and electronic fund transfers without obtaining prior written approval from another District official. These same individuals also confirm the wire transfers with the banks.

Further, the District was not processing payroll and vendor checks in a cost-efficient manner. The District could save taxpayers up to $54,000 per year in the cost of processing checks by performing the service in-house rather than contracting with the Mid-Hudson Regional Information Center (MHRIC).

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash disbursements, payroll, in-house check printing, and information technology.

The District stated that although they expended $51,524 for their check printing process, the District received approximately $34,000 in State Aid to offset this expense. The money then allowed the District to offset the tax levy by this amount. As a result, the net expense for this service was approximately $17,000, which the District felt was a much smaller expense than the amount the District would expend on in-house printing.

The District agreed with the remainder of the recommendations and have indicated that they plan to implement corrective action.

Wantagh Union Free School District

Internal Controls Over Selected Financial Operations

2009M-92

10th Judicial District

There is no evidence that the Wantagh foundation for Educational Excellence, which administered the District’s summer program for special education students who required a 12-month educational program, has been approved by the Commissioner of Education to provide such services or programs. In 2006-07, the District paid over $225,000 to the Foundation and in 2007-08, that amount increased to over $282,000.

Employees received payments of $9,505 and compensatory time balances of about 397 hours to which they may not be entitled.  Twenty-four employees were allowed to carry over a total of about 1,252 sick days in excess of the stated limit. Over $15,000 in questionable payments in lieu of health insurance to eight separate employees, were also found.

Further, the board of education was also provided with incomplete treasurer’s reports. The treasurer’s financial reports were missing general fund bank reconciliation reports or included bank reconciliation reports that were up to five months late.

Finally, the District did not have a formal disaster recovery plan, and backup tapes were not being stored at a secure location for protection.

17 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding not-for-profit relationships and overpayments, payroll, sick leave, and health insurance procedures, the treasurer’s financial reports, and data protection and recovery.

The District has agreed with the recommendations and have indicated that ten of the recommendations have already been implemented, while the remainder are now being addressed by the District.

West Irondequoit Central School District  Reserve Funds and Liabilities

2009M-105

7th Judicial District

District officials did not properly establish or use reserve funds. District officials also did not properly record retiree health insurance costs and related liabilities. As a result, over $7.1 million, which should have been classified as general fund unreserved fund balance and could have been used for District operations, was either accumulated in reserve funds, or recorded as a District liability.

In June 2008, the District had seven reserve funds with a cumulative balance of over $7.2 million. Approximately $4.1 million of these amounts should not have been reserved and/or were misreported and could have been used to reduce the tax levy, or for other District operations. The District also incorrectly reported $138,787 in a dental insurance reserve. The District also improperly recorded, and thereby overstated, two liabilities by approximately $3 million.

4 recommendations

The District generally disagreed with the recommendations pertaining to the tax certiorari reserve, the unemployment reserve, dental insurance reserve, and the insurance reserve.

The District has indicated that they will take appropriate corrective action in certain areas.

Western Suffolk BOCES  Internal Controls Over Information Technology and Gasoline Credit Cards

2009M-132

10th Judicial District

BOCES officials had not adopted comprehensive IT policies and procedures that provide guidance to BOCES employees on all aspects and appropriate use of IT systems and data. BOCES also found that user accounts were still enabled for 17 individuals who separated from BOCES service anywhere from six months to four years ago. Audit logs are also not reviewed.

BOCES officials have adopted a sound credit card policy that clearly outlines when credit cards may be issued and how they are to be used. There were only minor discrepancies in the BOCES’ adherence to these policies.

4 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding information technology policies and procedures, user access and permissions, and audit logs.

BOCES agreed with the recommendations, and have indicated that they will implement corrective action shortly.

New York City Office of the Comptroller

Audit

Major Finding(s)

Recommendation/Response

New York City Department of Education (NYCDOE)

Audit Report on the Department of Education's Administration of the Early Grade Class Size Reduction Program

FM09-113A

1st, 2nd, 11th, 12th Judicial District

(Contract for Excellence District)

In the 2008 fiscal year, the NYCDOE did not spend $48.4 million (26.9%) of the $179.9 million Early Grade Class Size Reduction (EGCSR) Program funds in accordance with EGCSR guidelines, and fell significantly short of providing the required number of additional classrooms paid for with State EGCSR funds.  NYCDOE used nearly $46.8 million of the $179.9 million earmarked for reducing early grade class size to supplant $46.8 million in tax levy funds.

The $46.8 million should have been spent on creating an additional 414 general education classes at 245 schools across the City, but these funds were improperly used to pay for teacher positions that would have existed without the EGCSR program.

Of the total $46.8 million that was misused, 115 elementary schools used more than $17.9 million to supplant tax levy funds instead of creating 159 additional classes, even though they had the need and capacity to add classrooms. An additional $21 million was improperly allocated to 108 schools that did not have the capacity to add 185 additional classrooms. Finally, $7.9 million was given to 46 schools to add 70 additional classrooms, which already had class sizes of 20 students or less in kindergarten to third grade and consequently had no need for additional EGCSR funding.

Fifteen schools also misspent $1.6 million, claiming to have spent it on per diem absence coverage, cluster teachers, and teacher removals (transfers, resignations, maternity leave, etc.) instead of using the funds to create 14 new classrooms.

8 recommendations

The NYCDOE now states that it conforms to the more flexible federal EGCSR guidelines, so the audit’s recommendations address the new federal policy in place, as of fiscal year 2009.

Eight recommendations were made to the NYCDOE Central office and Integrated Service Centers (ISCs). The recommendations included that NYCDOE Central should continue to give priority to new classroom formation, require schools to prepare a formal annual plan detailing whether funds will be used to add classrooms or to fund push-in teachers, and that ISC’s should monitor use of EGCSR funding.

Additionally, it was recommended that ISC’s should closely monitor schools that plan to add a classroom to ensure that funds are used only to create classrooms additional to those which would have existed without EGCSR, and that they make use of Enrollment, Capacity, and Utilization Reports for those schools that plan to add a push-in teacher to determine whether an additional classroom can be added instead.

NYCDOE did not understand the purpose of the audit, and believed that the audit’s methodology was faulty since the auditors relied upon information that became available well after funding allocations were made.

NYCDOE has indicated that in allocating unrestricted funds for EGCSR in 2009-10, they will make it clear that their intent of the funding is to retain teachers previously funded, whether for additional classrooms, for push-ins to reduce pupil-to-teacher ratios, or for class coverage in Grades K-3 classrooms.