Meeting of the Board of Regents | November 2009
Report of
REGENTS SUBCOMMITTEE ON AUDITS
to
The Board of Regents
November 17, 2009
Regent Geraldine Chapey, Chair of the Regents Subcommittee on Audits submitted the following report.
Your Regents Subcommittee on Audits had its scheduled meeting on November 16, 2009. The members of the Subcommittee in attendance were Regent Chapey, Regent Cofield, and Regent Bowman. Regent Tilles also attended.
Items for Discussion
Chair’s Remarks: Regent Chapey welcomed everyone and commented on the changing role of finances and audits as they become front and center in today’s economy.
Update on Department Activities Related to the American Recovery and Reinvestment Act (ARRA)
Staff briefed the members on three aspects of the Department’s administration of ARRA funds. We were briefed on the results of an audit of our control systems over ARRA that was conducted by the United States Department of Education Office of Inspector General. We were also briefed on the status of the flow of funding to various sub-recipients and the status on the results of the Department’s first required reporting cycle.
Presentation of Audits
We were presented with 50 audits this month. They were all reviewed by the Department’s Internal Audit Workgroup. Forty-eight audits were issued by the Office of the State Comptroller (OSC), one by the City of New York’s Office of the Comptroller, and one by the Office of Audit Services (OAS). Forty-two of the audits were of school districts, one of the New York City Department of Education, four of BOCES, one of a State supported school, one of a degree-granting college, and one of a Regional School Support Center.
The findings were in the areas of procurement, capital assets, payroll, cash, information technology, extraclassroom activity fund, budgeting, financial reporting, claims processing, segregation of duties, conflict of interest, fingerprinting and others such as school nutrition, and administration of the Early Grade Class Size Reduction Program.
The result of the full review of audits presented by the Department’s Internal Audit Workgroup is attached.
Regents Subcommittee on Audits
November 2009
Review of Audits Presented
Department’s Internal Audit Workgroup
Newly Presented Audits
We reviewed the 50 audits that are being presented to the Subcommittee this month. Forty-eight audits were issued by the Office of the State Comptroller (OSC), one by the City of New York’s Office of the Comptroller, and one by the Office of Audit Services (OAS). Forty-two of the audits were of school districts, one of the New York City Department of Education, four of BOCES, one of a State supported school, one of a degree-granting college, and one of a Regional School Support Center.
The findings were in the areas of procurement, capital assets, payroll, cash, information technology, extraclassroom activity fund, budgeting, financial reporting, claims processing, segregation of duties, conflict of interest, fingerprinting and others such as school nutrition, and administration of the Early Grade Class Size Reduction Program.
The Department has issued letters to the auditees, reminding them of the requirement to submit corrective action plans to the Department and OSC within 90 days of their receipt of the audit report.
The Department’s Internal Audit Workgroup identified 23 of the audits for further review and follow-up.
- Fund Balance, Reserves and Budgeting Practices (Altmar-Parish-Williamstown, Barker, Carle Place, Clinton-Essex-Warren-Washington BOCES, Ellenville, Friendship, Hewlett-Woodmere, Onondaga-Cortland-Madison BOCES, Orleans Niagara BOCES, West Irondequoit)
Summary of Audit
The findings generally indicate that the districts over funded some of the reserves. These reserves were not used for the intended purpose and the districts made payments out of the General Fund instead.
Follow-up Action
OAS will continue to follow-up on the corrective action plans until all significant recommendations are fully implemented or no longer applicable. OSC will also begin a process to assess the validity of balances in the Employee Benefit Accrued Liability Reserves (EBALR). The Department will monitor legislative actions relative to fund balance and reserves.
- Compliance with Fiscal Accountability Legislation (Cattaraugus-Little Valley, Glen Cove)
Summary of Audit
Cattaraugus-Little Valley has not complied with four of the Fiscal Accountability Legislation’s Five Point Plan. The four are: fiscal oversight training, appointment of an internal auditor, appointment of an audit committee, and formal audit response preparation. Two of Glen Cove’s board of education members did not obtain the required training; another one did not complete the training within the required time period.
Follow-up Action
The Office of Counsel is reviewing the audit findings to assess the need for action.
- Claims Auditor Independence (Alfred-Almond, Hornell)
Summary of Audit
The districts appointed a claims auditor from its BOCES. The districts purchased and paid millions of dollars to the BOCES for its services. These significant payments result in the impairment of independence of the claims auditor, who as a BOCES employee, approves district payments to his/her employer.
Follow-up Action
SED has proposed legislation to allow BOCES to provide this service with some limitation.
- Board Members Conflict of Interest (Granville, Thousand Islands)
Summary of Audit
The findings indicate that a board of education member has a prohibited interest in a vendor’s contract with the district because either they or their spouse owns the business.
Follow-up Action
The Office of Counsel is reviewing the audit findings to assess the need for further action.
- Altmar-Parish-Williamstown Central School District
Summary of Audit
The District’s financial and budgetary reporting procedures were not adequate to monitor finances and financial condition. Operating deficits of approximately $500,000 and $600,000 were incurred during fiscal years 2005-06 and 2006-07, respectively. This will reduce the District’s unreserved general fund balance to $71,095. The District also spent $1.3 million on a capital project what was later abandoned.
Follow-up Action
Staff from the Office of Education - P-12 will follow-up.
- Brookhaven-Comsewogue Union Free School District
Summary of Findings
The board of education’s contract with the former superintendent contained unusual provisions that increased his separation payment and 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.
Follow-up Action
The District responded by indicating this was an agreement based on bargaining unit contract provisions that have been discontinued. No additional follow-up is needed.
- Clinton-Essex-Warren-Washington BOCES
Summary of Audit
Despite the internal audit function not performed in accordance with Education Law and contract requirements for the prior two fiscal years, the BOCES Board still reappointed the same individual for 2008-09.
Follow-up Action
Staff from the Office of Education - P-12 will discuss the findings with the District Superintendent.
- Delhi Central School District
Summary of Audit
The District did not ensure that a clearance for employment was received from SED before hiring 3 of the 16 employees. The District also did not have procedures to ensure that independent contractors undergo criminal history checks, including fingerprinting, before providing services.
Follow-up Action
The audit was referred to the Office of School Personnel Review and Accountability (OSPRA) for follow up.
- Friendship Central School District
Summary of Audit
A 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.
Follow-up Action
Staff from the Office of Education - P-12 and the Office of Audit Services will discuss the findings with the District Superintendent.
- Hewlett-Woodmere Union Free School District
Summary of Audit
The District improperly classified an independent contractor (attorney) as an employee and enrolled this individual in the Retirement System. The District did not implement adequate controls to protect cash receipts, and the duties of collecting and recording cash were not segregated. The treasurer does not have adequate oversight over signed checks, and 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.
Follow-up Action
OAS will review the corrective action plans to ensure all recommendations are implemented.
- Mt. Pleasant-Blythedale Union Free School District
Summary of Audit
Internal Controls are weak in claims processing and building project purchasing. Thirty-two of fifty claims were not audited before payment. The claims auditor did not certify 23 warrants for the period July 1, 2007 - May 4, 2009. Five of the warrants were not signed by the Board. District officials also did not competitively bid public work contracts for a building renovation project. Of the eight contractors selected by the audit for testing (paid $577,600), five were hired (and paid $342,000) by the District without undergoing competitive bidding.
Follow-up Action
OAS will review the corrective action plans to ensure all recommendations are implemented. The finding on the building renovation project was referred to the Office of Facilities Planning.
- Nutrition in School Districts across New York State (Bethpage, Brentwood, Catskill, Gates-Chili, Hancock, Hudson Falls, Lansingburgh, LeRoy, Monticello, New Rochelle, New York Mills, Niskayuna, Port Jefferson, Warrensburg, Waterloo, Watervliet, Waverly, Webster, Westbury, and Wyandanch
Summary of Audit
Of the 20 school districts audited, all 20 adopted wellness policies. However, 10 of the 20 lacked a required plan for measuring implementation, while 16 had an active committee. In regards to developing guidance for competitive foods and beverages, 16 adopted guidance but 12 did not fully comply. Two districts did not comply with Department regulation in offering for sale certain competitive foods prior to end of last meal period.
Follow-up Action
The report has been referred to our Child Nutrition Program Administration office for any follow-up it deems appropriate. OAS will review the corrective action plan and share it with that office.
- Roosevelt Union Free School District (4th Quarter 2008-09 Budget Review)
Summary of Audit
The District has a potential operating surplus of approximately $6.6 million for the year ending June 30, 2009. If this is realized, the District will end the 2008-08 fiscal year with a projected accumulated fund balance of $21.1 million. Budget transfers (16 journal entries totaling $1 million and 18 budget transfers for debt service amounting to $21 million) were made without prior board of education approval. The Special Aid Fund revenues are less than budgeted appropriations by $94,667 as of June 30, 2009.
Follow-up Action
SED will continue to closely monitor the District’s fiscal controls and condition.
- New York City Department of Education’s Administration of the Early Grade Class Size Reduction Program
Summary of Audit
In the 2008 fiscal year, the New York City Department of Education (NYCDOE) did not spend $48.4 million (26.9%) of the $179.9 million of the 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.
Follow-up Action
Staff from OAS will follow-up with the Office of Fiscal Services and Office for School Improvement and Community Services.
- Wantagh Union Free School District
Summary of Audit
The District contracted with Wantagh Foundation for Educational Excellence to administer the summer program for special education students requiring a 12-month educational program; however, there is no evidence that the Foundation has been approved by the Commissioner of Education to provide such services or programs. In addition, two board of education members are officers or employees of the Foundation and have an undisclosed interest in the contract with the District. Further, they did not recuse themselves from voting on the contract.
Follow-up Action
OAS will contact VESID’s Special Education Quality Assurance office to apprise them of the finding. Office of Counsel will review conflict of interest issue.