Meeting of the Board of Regents | September 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:

September 1, 2009

STRATEGIC GOAL:

Goal 5

AUTHORIZATION(S):

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

Date:  September 2009

Time:  TBD

Location:  TBD

TOPIC

OUTCOME

WHO

MINUTES

Opening Remarks

Chair

3

Review Agenda

Information

Conway

2

Planned Audit Activities Related to ARRA

Information

Conway

15

External Quality Assurance Review of the Office of Audit Services

Information – Questions answered

Conway

10

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

New York City Office of the Comptroller

* New York City Department of Education (footnote 1) (Report # MD08-102A)

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* New York City Department of Education (footnote 7) (Report # ME09-065A)

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Office of the State Comptroller

Abbott Union Free School District

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Alexandria Central School District

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Amsterdam (Greater) School District

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Attica Central School District

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* Baldwin Union Free School District (footnote 9)

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Bath Central School District

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Brasher Falls Central School District

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Brocton Central School District

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Caledonia-Mumford Central School District

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* Clarence Central School District (footnote 4)

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* Corning City School District (footnote 5)

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Deer Park Union Free School District

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Depew Union Free School District

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* East Islip Union Free School District (footnote 9)

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East Rochester Union Free School District

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Edgemont Union Free School District

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**Erie 1 BOCES

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Erie 2 Chautauqua-Cattaraugus BOCES

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Falconer Central School District

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Franklin Square Union Free School District

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Fulton City School District

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Garden City Union Free School District

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Genesee Valley BOCES

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Globe Institute of Technology

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Goshen Central School District

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Grand Island Central School District

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Greenburgh Eleven Union Free School District

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* Greenburgh-Graham Union Free School District (footnote 3)

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* Greenburgh-North Castle Union Free School District (footnote 3)

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**Half Hollow Hills Central School District

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Hamilton Central School District

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* Hamilton-Fulton-Montgomery BOCES (footnote 2)

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Hammondsport Central School District

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Hendrick Hudson Central School District

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Indian Lake Central School District

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Johnson City Central School District

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Kenmore-Town of Tonawanda Union Free School District

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LaFargeville Central School District

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* Lansing Central School District (footnote 3)

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Levittown Union Free School District

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Livonia Central School District

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Madison-Oneida BOCES

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* Marlboro Central School District (footnote 3)

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* Massapequa Union Free School District (footnote 9)

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Merrick Union Free School District

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Milford Central School District

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New Hyde Park-Garden City Park Union Free School District

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* New York City Department of Education (footnote 10) (Report # 2007-N-22)

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New York City Department of Education (Report # 2008-N-1)

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* New York City Department of Education (footnote 8) (Report # 2008-N-15)

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North Salem Central School District

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* North Shore Central School District (footnote 9)

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* Northport-East Northport Union Free School District (footnote 9)

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Norwood-Norfolk Central School District

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Olean City School District

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Ontario-Seneca-Yates-Cayuga-Wayne BOCES

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Panama Central School District

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* Plainedge Union Free School District footnote 9)

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* Raquette Lake Union Free School District (footnote 3)

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Red Creek Central School District

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Rensselaer-Columbia-Greene BOCES (Questar III)

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Rocky Point Union Free School District

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Rye City School District

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Rye Neck Union Free School District

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* Sachem Central School District (footnote 9)

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Sharon Springs Central School District

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Skaneateles Central School District

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Sweet Home Central School District

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* Syosset Central School District (footnote 9)

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** Owen D. Young Central School District

* VESID - White Plains District Office (footnote 6)

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West Hempstead Union Free School District

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West Park Union Free School District

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Yorkshire-Pioneer Central School District

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September 2009 Total

26

9

16

14

17

24

3

6

1

5

3

21

* Other:

1

Administration of Standardized Tests

2

Central Business Office

3

Control Environment

4

Electronic Equipment Inventory, Internal Audit Function

5

Medicaid Reimbursement, Cellular Phones

6

Payments to the Dell Preferred Account

7

Report of Graduation Rates

8

School Nutrition

9

Special Educational Services

10

Supplemental Educational Services

**

No Recommendations

May 2007 - June 2008

September 2008

October 2008

November 2008

December 2008

January 2009

February 2009

March 2009

April 2009

June 2009

September 2009

Running Total

Procurement

108

35

6

6

8

13

16

7

4

8

26

237

Capital Assets

18

1

0

0

0

0

0

0

0

0

0

19

Claims Processing

120

16

3

7

5

3

8

2

1

3

9

177

Payroll

122

24

5

7

10

12

11

1

1

4

16

213

Cash

96

21

4

4

5

5

13

2

1

3

14

168

Financial Reporting

70

15

3

8

5

8

11

5

2

7

17

151

Information Technology

109

25

6

11

11

10

12

6

3

5

24

222

Capital Construction

5

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

21

Segregation of Duties

54

6

2

2

1

1

2

1

0

0

6

75

Budgeting

16

1

1

0

1

1

0

1

0

6

1

28

Conflict of Interest

12

4

1

1

3

1

3

0

0

0

5

30

Fingerprinting

6

0

1

1

1

2

0

2

0

0

3

16

Other

14

19

4

17

1

23

5

1

3

6

21

114

Total

757

173

37

65

52

80

81

28

16

42

145

1,476

Office of the State Comptroller

Audit

Major Finding(s)

Recommendation/Response

Abbott Union Free School District

Internal Controls Over Claims Processing and Payroll

2009M-91

9th Judicial District

(Fiscal Stress District)

The board has appointed a claims auditor, but has not provided proper guidance through adopted policies and procedures or a job description. The claims auditor also does not report findings to the board or complete the certification section of warrants. Only 3 of the 14 warrants reviewed were certified. Also reviewed were 106 claims (totaling $207,885), and it was found that the claims were not properly audited. Seven of the 106 claims (totaling $5,723) were not approved. Eighteen claims (totaling $32,501) were not itemized and 7 of those 18 did not have adequate supporting documentation.

Additionally, a vendor was overpaid by $6,531 because the claims auditor had approved various claims which were paid to the vendor even though there were differences between the hours billed on the invoices and the hours worked as reported in the time records.

8 recommendations

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

The District has agreed with the findings specifically pertaining to claims auditing policies and keeping accurate audit logs, the review of claims and proper documentation, questionable payments and recovering overpayments. Additionally, the District agreed with recommendations regarding employee compensations through the payroll process, and board resolutions regarding salary. The District has indicated that they will implement corrective action for the recommendations.

Alexandria Central School District

Internal Controls Over Cash Receipts and Disbursements

2009M-112

5th Judicial District

District officials have not established appropriate policies or procedures to adequately safeguard financial resources in the business office. They have neither segregated financial duties related to cash receipts and disbursements, nor have they implemented access controls to ensure proper segregation of duties within the computerized accounting system. Furthermore, the treasurer, who is also the business manager, has full access rights to the District's computerized accounting system, and the accounts rights to the payroll module of the system.

5 recommendations

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

The District agreed with the recommendations specifically pertaining to the enhancement of written policies and procedures, and the proper segregation of duties for cash receipts. The District also agreed with the recommendations regarding the review of exception and change reports from the computerized accounting system, the treasurer’s facsimile signature, and access rights to the computerized accounting system. The District has indicated that they will implement corrective action as soon as possible to address the recommendations.

Amsterdam (Greater) School District

Internal Controls Over Purchasing

2009M-66

4th Judicial District

(Contract for Excellence

District)

It was determined that the District has established an adequate system of internal controls over purchasing.

Based on review of the their purchasing process, it was found that the District properly ensures that purchase orders are initiated and approved before purchases are made, claims are approved by the claims auditor prior to payment, and purchases are for appropriate District purposes.

Fifty claims were tested, and no material deficiencies were found.

There were no recommendations.

Attica Central School District

Internal Controls Over Reserve Funds

2009M-25

8th Judicial District

District debt service expenditures in the general fund have totaled more than $3 million annually during the six fiscal years ended 2007-08. However, the District did not use the Debt Reserve to help pay for any debt service costs. District officials also could not provide a formal plan to indicate when they expect to use this reserve for its intended purpose.

Additionally, even though the District maintains significant monies in the Unemployment Reserve, the District has not used the reserve as a funding source for reimbursements to the State. Instead, the District, as a matter of routine, budgets for these expenditures in the general fund and therefore levies taxes to fund them.

The District’s remaining three reserves (totaling over $3.1 million) were properly established, adhered to statutory requirements, and appeared to be at reasonable levels.

2 recommendations

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

The District disagreed, in part, with the recommendation specifically pertaining to using the moneys held in the Debt Reserve to fund debt service cost, and the reduction of the balance in the Unemployment Insurance Reserve to pay for unemployment claims.

The District has indicated that they will conduct an in-depth review and determine if some of the suggestions may be incorporated into the process for funding and maintaining the reserves. The corrective action plan will be submitted as soon as possible for approval by the board of education.

Bath Central School District

Internal Controls Over Payroll Processing

2009M-44

7th Judicial District

Internal controls over the District’s payroll processing are not designed appropriately because the payroll clerk performs virtually every phase of the payroll process. The payroll clerk is able to make changes in employees’ hourly and annual salary rates without any oversight, and is also able to set up payroll deductions and direct deposits, while also maintaining the payroll records.

2 recommendations

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

The District specifically agreed with the recommendations pertaining to the segregation of the payroll process and mitigating controls, and the assurance that employees are assigned the user rights that are consistent with their job descriptions. The District has agreed to implement corrective action to amend all concerns.

Brasher Falls Central School District

Internal Controls Over Purchasing and Payroll

2009M-80

4th Judicial District

District officials have established comprehensive policies and procedures for the procurement of goods and services, documentation requirements for claims to be paid, and a requirement that each claim be examined for payment by the claims auditor. Purchases were appropriate and reasonable, and all claims were approved for payment as required.

District officials did not establish policies and procedures to adequately segregate payroll duties or provide for effective compensating controls. The treasurer’s duties were not properly segregated, and the business manager and the superintendent’s duties do not constitute effective compensating controls because they are not performed in a timely manner.

2 recommendations

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

The District has indicated that they are in agreement with the recommendations specifically pertaining to the establishment of written policies for payroll duties, and the certification of payroll and wire deposits. The District has implemented corrective action to remedy the control weaknesses addressed in the report.

Brocton Central School District

Internal Controls Over the Extraclassroom Activity Fund

2009M-33

8th Judicial District

The board has established policies and procedures to govern the operations of the extraclassroom activity fund; however, there was a lack of enforcement of these policies and procedures as well as weaknesses in the procedures themselves.

The receipts from three clubs for the month of April 2008 were reviewed and compared to the June 30, 2008 cash balance in the accounting records maintained by the central treasurer. It was found that in all three cases, the cash balance listed on the club’s record did not agree with the corresponding balance on the central treasurer’s record. Out of 12 claims reviewed (totaling $6,413), 10 required receiving signatures for goods and services; however, 7 of the claims did not have such signatures.

2 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the extraclassroom activity fund.

The District has agreed with the recommendations specifically pertaining to the maintenance of activity fund monies in accordance with District policies, and the separation of recordkeeping and cash custody duties by the central treasurer. The District has indicated that they will implement corrective action to address the recommendations as soon as possible.

Caledonia-Mumford Central School District Internal Controls Over Selected Financial Operations

2009M-20

7th Judicial District

The District did not ensure that employees adhered to existing policies and procedures. As a result, the former central treasurer stole $4,000 in extraclassroom activity funds, and there were weaknesses in controls over the District’s information technology system. During the initial meeting with District management, the $4,000 theft by the former central treasurer was disclosed, and since then the District has responded by strengthening internal controls over these activities. However, further testing identified additional reported bookstore thefts and other discrepancies (totaling $3,154) that occurred during the audit period.

Further, the IT network is used to process and store financial and non-financial data. The board has not established policies and procedures to effectively address the safeguarding of computerized data and access.

9 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding information technology and the extraclassroom activity fund.

The District agreed with the recommendations specifically pertaining to strengthening and improving the internal controls for the extraclassroom activity funds, collections, restricting physical IT access, access controls based on job duties, and implementing a disaster recovery plan. The District has indicated that they are in the process of implementing corrective action to address the recommendations.

Clarence Central School District

Internal Controls Over Selected Financial Operations

2009M-68

8th Judicial District

District electronic equipment has apparently been lost, stolen, or removed from the premises by employees, without documented reason or authorization. Many technology purchases also lacked evidence of prior authorization by the business administrator, as required.

There was also significant personal use of District equipment. Subsequent to the audit, the board established a clearer policy concerning this issue; however, the new policy is still inadequate because it does not include provisions for the enforcement of the policy, monitoring for compliance, or the consequences for violations.

The board-appointed claims auditor is not independent of all business and accounting functions as required by law and District policy. The claims auditor also had no direct contact with the board.

Finally, the independence of the firm appointed to be the internal auditor is being questioned because the District had contracted with this same firm in the past to provide significant non-audit services.

17 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding electronic equipment inventory, the use of district computers, claims processing, and the internal audit function.

The District agreed with the recommendations specifically pertaining to establishing comprehensive inventory policies and policies for purchase approvals, and the consideration to take action against staff for using District funds to purchase electronic equipment for personal use. The District also agreed with the recommendations regarding the acceptable use policy, improper computer use, the claims auditor’s duties, adequate claims documentation, the RFP process, and the appointment of an internal auditor.

The District disagreed with the comments in the report regarding the purchase of a laptop computer,

a printer, and personal music storage device. It was stated that at no time did the employee try to obstruct or compromise the auditor’s investigation, and that the District strongly believes that the narrative of the incident should be removed from the report.

The District has implemented corrective action to address the recommendations.

Compliance with Education Law for Individualized Education Programs

(Baldwin Union Free School District, East Islip Union Free School District, Massapequa Union Free School District, North Shore Central School District, Northport-East Northport Union Free School District, Plainedge Union Free School District, Sachem Central School District, and Syosset Central School District)

2009-MS-1

10th Judicial District

The Law and Regulations specify the ways in which students are identified as eligible for special education, state the composition of a district's Committee of Special Education (CSE), and define requirements for performing timely and complete evaluations. Our review of attendance records of CSE evaluation meetings and 145 student referrals showed that all eight school districts complied with the referral and evaluation requirements in the Law and Regulations. Our test of 260 IEPs selected from the eight school districts found that all the districts had developed and implemented IEPs in a timely manner, and that all the IEPs we examined contained the required elements. We also found that school districts do a good job of ensuring that all parties involved in implementing a student's IEP were aware of their responsibilities and had access to the IEP. Finally, we reviewed 255 IEPs to verify that students had actually received the 939 special education services prescribed on all these IEPs. We concluded that school districts or other providers had likely delivered 928 of the services (almost 99 percent).

8 recommendations (each of the 8 districts received the same recommendation)

Seven districts that responded agreed with the recommendation to keep a log of IEP services in order to prove whether or not students received all required services for their IEPs.

The seven Districts have agreed to implement corrective action to address the recommendation.

Corning City School District

Internal Controls Over Selected Financial Operations

2009M-29

7th Judicial District

District officials had either not established internal controls, or controls that had been established were not implemented and operating effectively. District officials did not claim approximately $562,000 in Medicaid reimbursement to which it was entitled because the District lacked procedures to define responsibilities for collecting data and documentation, submitting and reconciling claims and monitoring the Medicaid reimbursement process for IEP services, Targeted Case Management (TCM), and Ongoing Service Coordination. In addition to the almost $562,000 in potentially lost revenue for the District, New York State lost over $562,000 in reimbursement.

The District’s purchasing policy and procedures did not address the process for obtaining professional services. District officials paid $527,730 to 16 professional service vendors for consulting, legal and training services, without using Requests for Proposals (RFPs). The policy and procedures were not distributed to employees.

During 2006-07, the District spent over $4.4 million on pupil transportation, of which $2.7 million (64 percent) was paid to private transportation contractors. The District paid the private transportation contractors $304,200 (13 percent) more than was allowed by the approved contract extensions. District officials have continually applied for extensions of the original contracts from the New York State Education Department (SED), without reviewing the District’s current transportation needs, which have materially changed.

The board adopted a policy to govern the use of credit and procurement cards, but did not follow the policy. The District did not maintain the list of all individuals who have been issued District credit and procurement cards. The District estimated they had a total of 5 credit cards and 20 procurement cards in use; however, it was determined the District actually had seven credit cards and 143 procurement cards. The District charged $67,851 on the credit cards. They also used vendor procurement cards for purchases at a local grocery store ($19,482) and at a home improvement store ($10,451).

The District did not monitor cellular phone use based on guidelines in their established policy. The District paid $5,835 for 36 cellular phones that were rarely used during the 2006-07 fiscal year. It was also determined that 9,444 (36 percent) of the minutes charged during the one-month test period, were potential personal calls. Eleven out of the 21 cellular phones were unaccounted for.

17 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding Medicaid reimbursement, procurement, and cellular phones.

The District agreed with the recommendations specifically pertaining to Medicaid and the addition of a full-time position devoted to Medicaid within the Pupil Personnel Services Department, purchasing processes and procedures, the use of procurement cards, District transportation needs, and cellular phone records and usage. The District has indicated that it will respond with all necessary actions to improve internal controls and reduce risk.

Deer Park Union Free School District

Internal Controls Over Selected Financial Operations and Disclosure of Interest

2009M-43

10th Judicial District

District officials have not developed procedures for assigning, reviewing, and updating user access rights to the financial software application, allowing seven of the nine employees tested to have access rights that were not needed for their jobs. The District also has no disaster recovery plan to safeguard computerized financial data from unauthorized access or potential loss. These control weaknesses place the District’s critical financial data at an increased risk of loss or misuse.

A board member also failed to disclose his employment with a copy machine firm that has a vendor contract with the District. During the audit period, the District paid the vendor approximately $195,000.

The board and District officials also did not develop written policies and procedures for monitoring vehicle fuel inventories, did not establish proper controls over fuel access, and did not ensure that fuel dispensing logs were properly kept. The District purchased approximately $459,000 of fuel during the audit period. The amount of fuel pumped was not reconciled to fuel delivery records, physical inventory readings, or vehicle-specific usage.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding information technology, disclosure of interest, and fuel inventory.

The District specifically agreed with the recommendations pertaining to user rights to financial software, the duties of the treasurer, a disaster recovery plan, disclosing interest in District contracts, and fuel inventory procedures. District officials have agreed to implement corrective action in order to address the recommendations.

Depew Union Free School District  Financial Condition and Internal Controls Over Procurement

2009M-49

8th Judicial District

The District has accumulated more than $6 million that should be used to benefit taxpayers by paying one-time expenditures funding necessary reserves, reducing debt, and/or reducing the tax levy, in accordance with applicable statutory requirements. While the District appropriates approximately $2 million in fund balance each year, it is not actually used because the District’s budgetary practices have consistently resulted in operating surpluses.

The District has not been using its Debt Reserve, which had a balance at June 30, 2008, of $1.7 million. Instead, the District levies taxes each year for this purpose, paying debt service from the general fund. The District is also overstating certain liabilities by $2 million and $1.7 million at June 30, 2007 and June 30, 2008 respectively. The District still exceeded the statutory limit at June 30, 2008, by $1.5 million.

Over the last four fiscal years, the District has underestimated revenues by a total of $6.2 million and overestimated expenditures by a total of $7.4 million. Because of this, the District has experienced operating surpluses, with actual revenues exceeding actual expenditures by more than $5.8 million over the last four years.

The District has also not properly used a Capital Reserve that was established in 1997. Over the last eight years, the District has spent more than $2.7 million of this reserve to purchase buses without required voter approval.

Although the board adopted a purchasing policy, detailed written procedures have not been developed. As a result, price quotations were not obtained to ensure that goods and services are procured in the most economical manner. Appropriate documentation was also lacking. Out of 45 purchases tested (totaling $362,985), 20 purchases (totaling $163,337) lacked documentation that the District obtained competitive bids or price quotations. District officials also did not confirm they received the State contract pricing for four purchases (totaling $13,121).

9 recommendations

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

The District agreed with the recommendations specifically pertaining to realistic budget estimates, use of the surplus fund balance, the Capital Reserve, the Debt Reserve, year-end encumbrances, properly accounted for liabilities, obtaining competitive quotes, supporting documentation, and the approval of purchase orders. The District has indicated that it plans to implement corrective action to address the recommendations.

East Rochester Union Free School District  Internal Controls Over Purchasing

2009M-48

7th Judicial District

The accounts payable clerk handled almost all phases of purchasing transactions, which resulted in a poor system of internal controls. The purchasing policy also did not require the solicitation of Requests for Proposals (RFPs) or sufficiently detail an alternative for the procurement of professional services. District officials could not provide sufficient documentation to indicate that the business administrator had reviewed or approved purchases totaling $272,814, the amount by which five of ten purchase orders reviewed had been exceeded.

 It was also determined that District officials paid a transportation provider $388,888 more than the contracted amount, and expended $44,800 for athletic transportation without the use of competitive means.

District officials have already begun to address many of the control weaknesses identified; however, the District should continue efforts to segregate duties or adopt compensating controls.

4 recommendations

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

District officials agreed with the recommendations specifically pertaining to purchasing policies and segregation of duties, the solicitation of RFPs, and transportation of students and contract terms. The District has indicated that they will implement corrective action shortly for the majority of the recommendations, while others have already been amended.

Edgemont Union Free School District

Internal Controls Over Professional Services and Computer Access Rights

2009M-87

9th Judicial District

It was found that although the board has adopted a purchasing policy, the policy does not require District officials to use competition, such as Requests for Proposals when procuring professional services. As a result, District officials made payments for professional services totaling $248,139 during the 2007-08 fiscal year, without seeking competitive proposals. The District also paid $97,049 for attorney fees without properly itemized bills.

Appropriate access controls have not been implemented to ensure a proper segregation of duties, and to limit access to users based on their job descriptions and responsibilities. The accounts payable clerk and the bookkeeper also have authorization rights that exceed their normal duties.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding professional services and computer access rights.

District officials agreed with the recommendations specifically pertaining to the District’s procurement policy, contracts for professional service providers, properly itemized claims for payment, and the restriction of user access rights.

Erie 1 BOCES

Regional Information Center

2009M-139

8th Judicial District

The State Comptroller is required to audit all school districts, BOCES, and charter schools in the State by March 31, 2010. The school district audits, done in conformance with generally accepted government auditing standards, have a requirement to contact a BOCES Regional Information Center (RIC) to gather information about a school district’s information technology systems that are provided or serviced by the RIC.

Based on inquiries made of the RIC management and the review of policies and procedures during the examination of technology services the RIC provided to component school districts, it was concluded that as of February 2009, controls were adequately designed.

There are no recommendations.

Erie 2 Chautauqua-Cattaraugus BOCES

Internal Controls Over Reserves

2009M-93

8th Judicial District

The BOCES never properly established the Employee Benefit Accrued Liability Reserve (EBALR), as they failed to obtain board approval. Additionally, the BOCES improperly established and funded the workers’ compensation reserve. It also did not properly fund the liability and the Career and Technology Education (CTE) equipment reserves, and overstated a current liability associated with the EBALR. As a result, at least $6.3 million was not properly refunded to the component school districts.

4 recommendations

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

The BOCES agreed with the recommendations specifically pertaining to the funding of reserves to component school districts and the public, the maintenance of a contribution record for the CTE equipment reserve, properly reporting current liabilities, the support of financial statements by financial records, and the proper establishment of the EBALR. The BOCES has indicated that they will implement corrective action to address the recommendations.

Falconer Central School District

Financial Condition and Internal Controls Over Selected Financial Operations

2009M-14

8th Judicial District

The District’s budgeted appropriations have exceeded actual expenditures by $8.6 million over the past five years, and revenues were underestimated by a total of more than $1.6 million for the same five fiscal years. As of June 30, 2008, the unreserved, unappropriated general fund balance totaled $9,905,881, which is more than three and one-half times the amount allowed by law. The need for $5.2 million in District reserve funds is also being questioned.

Duties were not properly segregated in the business office, which significantly increases the potential for errors. There were no irregularities found.

Access to the computerized financial system was not properly restricted, and although the testing did not reveal any exceptions, there is still a high possibility that errors could occur if these measures are not corrected.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the District’s financial condition, the cash receipts process, and the computerized financial system.

District officials generally agreed with the recommendations specifically pertaining to the benefit of taxpayers through the surplus fund balance, properly monitoring financial activity and the budget, as well as District reserves. Officials also agreed with the recommendations regarding the segregation of duties within the business office and guidelines for extra-curricular activities. The District has indicated that they will initiate corrective action in order to address the recommendations.

Franklin Square Union Free School District Internal Controls Over Selected Financial Operations

2009M-62

10th Judicial District

Payments made to 6 of 50 professional service providers were tested, and it was found that District officials did not solicit competitive proposals prior to selecting all six providers (who were paid a total of $267,379). Payments (totaling $429,696) made to 20 vendors were also tested, and it was found that the District did not use competitive bidding as required for four purchases and three public work contracts (totaling $177,074). Finally, 20 payments (totaling $47,586) that required written or verbal quotes were tested, and there was no evidence that District personnel had attempted to obtain quotes for 13 purchases (totaling $23,607).

The District did not maintain a list of employees who are authorized to use District credit cards, and the District did not have adequate procedures to ensure that credit card claims were sufficiently supported prior to payment. Ten claims packages for credit card purchases were tested, and it was found that nine of the packages (totaling $18,445) were not adequately supported.

Further, internal controls over the check-signing process were not adequate. Twenty of the checks that were tested were processed without the treasurer’s signature and involvement.

The District also improperly classified an independent contractor, an attorney, as an employee, and enrolled this individual in the New York State and Local Employee’s Retirement System.

Finally, the District had no comprehensive computer policies and procedures and there is inadequate control over access to the IT systems components, such as servers. The District also had not devised a plan to provide guidance on the prevention of the loss of computer information as well as the recovery of data in the event of a disaster.

19 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding procurement, the check-signing process, classification of an independent contractor, and computer data safeguards.

The District has agreed with the recommendations specifically pertaining to the Request for Proposal (RFP) process, credit card claims, competitive biding and quotations, the check signing process, and the classification of an independent contractor. The District also agreed with the recommendations regarding information technology policies and procedures, server room access, back-up data, and disaster recovery in case of an emergency. The District has indicated that they will implement corrective action to address the recommendations in the report.

Fulton City School District

Interest in Contracts

2009M-94

5th Judicial District

(Contract for Excellence District)

The District did not have policies and procedures to detect potential conflicts of interest and prevent District officers or employees from entering into prohibited contracts. There is the possibility that a music teacher may have a prohibited interest in contracts with the District. The music teacher’s spouse owns a music store that provides musical equipment to the District. During the audit period, the District made $17,740 in purchases from this music store. The music teacher is also the music department facilitator for the school building in which she works and is responsible for overseeing the school’s music program, and determining its needs. The music teacher did not publicly disclose her involvement in these contracts in writing to her supervisor or to the board.

The District also did not post a copy of the General Municipal Law’s conflict of interest provisions in District buildings.

3 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding interests in contracts.

The District agreed with the recommendations specifically pertaining to the review of conflict of interest provisions of General Municipal Law (GML), disclosing interest in contracts with the District, and posting a copy of the GML’s conflict of interest provisions in each public building. The District has indicated that they will implement corrective action to amend all concerns addressed in the report.

Garden City Union Free School District

Internal Controls Over Selected Financial Operations

2009M-46

10th Judicial District

The District established an Employee Benefit Accrued Liability Reserve (EBALR) in November 2003, using about $1.5 million of available funds. Money from this reserve has not been used since its inception, and the reserve contained $5.2 million in excess fund balance during our audit period. EBALR interest earnings have been improperly added to the general fund where their use is not restricted to the purpose for which the reserve fund was established. It is estimated that EBALR’s interest earnings for 2006-07 were approximately $120,000.

The District also had no written procedures for the protection and use of electronic signature or for the appropriate authorization and review of wire transfers. Bank reconciliations also were not properly prepared for all District bank accounts and the District did not issue pre-numbered cash receipt forms.

The District did not include the annual salaries paid to eight administrators and five technology specialists (totaling $1.6 million), in the board minutes made available for audit and posted on the District’s web site for the general public. The five technology specialists also received fringe benefits (totaling $97,000) without any evidence of board approval. Eight additional individuals received $22,398 for 484 hours of overtime that was not pre-authorized in writing.

The District paid five vendors ($732,571) for professional services without soliciting competitive  proposals. The District also did not have written agreements with one of the providers (who received $95,674) during the audit period. A professional firm was also overpaid $1,615 because the firm charged for services at hourly rates greater than the amounts specified in their agreement. Further, 15 out of 34 claims reviewed (totaling $169,918) were for confirming orders. It was also found that 560 gallons of diesel fuel (valued at $1,517), were unaccounted for.

Finally, the District does not have written policies and procedures that address the areas of computer user permissions and disaster recovery.

18 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding EBALR, the business office, payroll, purchasing, and information technology.

The District agreed with the recommendations specifically pertaining to EBALR interest, productive use of the surplus from the EBALR, payment of leave benefits, cash disbursement policies, wire transfers, and bank reconciliations. The District also agreed with the recommendations regarding salary authorization, fringe benefits, and overtime policies. The District also agreed with the recommendations within purchasing, such as those discussing approval of written agreements, contracts with the claims auditor, and purchase orders. Finally, the District has agreed to revise user permissions, to remove users who are no longer employed, and to develop a disaster recovery plan. The District will implement corrective action to address all recommendations as soon as possible.

Genesee Valley BOCES  Internal Controls Over Selected Financial Activities

2009M-37

7th Judicial District

The BOCES has not properly estimated and disclosed administrative and programmatic costs to its component districts with regard to the funding and use of an Employee Benefit Accrued Liability Reserve (EBALR). The BOCES also did not have written policies and procedures to provide guidance and oversight for these financial operations.

Certain employee fringe benefit appropriations, such as retirement system contributions, were examined in the programmatic budgets for 2007-08, and it was found that BOCES officials overestimated appropriations for these costs, despite the availability of updated cost projection data for these expenditures.  The BOCES withheld a portion of the 2007-08 surplus (totaling $133,700) to fund its EBALR without adequately disclosing this practice to component districts. This practice has occurred for the last six years.

The BOCES does not use its EBALR to fund related expenditures, and instead BOCES officials budget and pay for related expenditures from the administrative budget.

The manner in which the BOCES funds and uses this reserve, is in question. The BOCES will not be required to pay certain employees a benefit for many years to come. During this time a substantial amount of interest will likely be earned on the restricted cash that is set aside for this purpose. In addition, the calculated liability may fluctuate based on employees’ use of accrued leave, which could result in a scenario where the EBALR balance exceeds the long-term liability.

Further, the board and BOCES officials have not established adequate controls over the use of professional service providers. BOCES officials also have not developed formal procedures to ensure that other appropriate competitive pricing methods are used and that payments are made based on authorized written contracts.

The BOCES paid ten service providers (totaling $669,197) without the use of Request for Proposals (RFPs) to determine and document that the best price was obtained. There were also significant exceptions with $98,545 in payments, such as payments being made without the benefit of a written agreement and services being rendered before a contract was approved.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the Employee Benefit Accrued Liability Reserve, and the procurement of services.

The District agreed with the recommendations specifically pertaining to the funding of the EBALR, the solicitation of Requests for Proposals and the use of written contracts.

The District has agreed with the recommendations and has indicated that they will implement corrective action as soon as possible.

Globe Institute of Technology

Tuition Assistance Program (TAP)

2007-T-5

$1,563,144 adjustment

On November 8, 1996, Globe Institute of Technology (Globe) received approval from the Board of Regents to operate as a two-year degree-granting institution. On April 8, 2000, Globe received Regents’ approval to grant baccalaureate degrees. The institution is a private, for-profit, four-year college, with its main campus located in New York City.

It was determined that Globe was overpaid $1,563,144, because school officials incorrectly certified 23 students as eligible for 28 Tuition Assistance Programs (TAP). The accuracy of 8,363 TAP certifications the school awarded for the three-year period ended June 30, 2006, was tested by reviewing a statistical sample of 200 randomly-selected awards. Twenty-four awards (totaling $54,667) were disallowed. A statistical projection of these audit disallowances to the entire population results in an audit disallowance of $1,554,765. Four awards (totaling $8,379) were also disallowed. There awards were not projected to the population.

It is recommended that the Higher Education Services Corporation (HESC) recover a total of $1,563,144 ($1,554,765 and $8,379) plus applicable interest, from Globe.

2 recommendations

It is recommended that HESC recover a total of $1,563,144 ($1,554,765 and $8,379) plus applicable interest, from Globe.

It is recommended to the State Education Department that they ensure that Globe officials comply with the State Education Department requirements relating to matriculation, good academic standing, and full-time attendance.

Goshen Central School District

Internal Controls Over Selected Operations

2009M-78

9th Judicial District

It was determined that background checks were not performed for 20 of the 23 independent contractors (psychiatrists and other therapists) that were tested who had direct contact with students.

There were also inadequate controls over purchasing. Nine out of 12 professional service providers were awarded contracts totaling $366,000 without soliciting Requests for Proposals or using other forms of competition. District officials also did not obtain written quotes for nine purchases totaling $16,300.

Finally, there was not a formal District-wide security plan established. There are also no policies and procedures for the use of mobile storage devices, and there is no oversight mechanism for their use.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding criminal background checks, purchasing, and information technology.

The District agrees with the recommendations specifically pertaining to the development of a procedure to ensure that background checks for contractors are routinely conducted, amending the purchasing policy for the Request for Proposals process, and obtaining written quotes for purchases. The District also agreed with the recommendation to establish a formal District-wide security plan, disaster recovery plan, as well as comprehensive written policies to address the use of mobile storage devices. The District has indicated that they will implement corrective action to address the recommendations, if they have not done so already.

Grand Island Central School District

Internal Controls Over Financial Condition and Potential Conflict of Interest

2009M-50

8th Judicial District

It was found that the District did not prepare reasonable budgets for the 2004-05 through the 2007-08 fiscal years. Although data was available to develop accurate budget estimates, expenditures were consistently overestimated, while revenues were underestimated. As a result, the District generated general fund operating surpluses (totaling $12 million) during a four year period.

The District’s four reserve funds (totaling $9.4 million at June 30, 2008) were also analyzed, and it was determined that the Employee Benefit Accrued Liability Reserve (EBALR) was properly established and reasonably funded. The District also improperly reported a Debt Reserve in the general fund and does not have a plan to use Debt Reserve monies (totaling $900,000). The District also overstated its reserve for encumbrances by an average of $650,000 each year.

Finally, there was a potential conflict of interest involving the board president and an architectural firm that the District had hired. Based in part upon written representations from the board president, a conflict of interest does not appear to exist. However, a risk still exits because the board president may be put in a position to approve changes to a capital project and/ or modify terms of the contractual relationship with Cannon, his employer.

9 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial condition and a potential conflict of interest.

The District specifically agreed with the recommendations pertaining to developing annual budget estimates, budget appropriations, using the surplus to benefit taxpayers, the use of money in the Debt Reserve, and year-end encumbrances. The District also agreed with the recommendations regarding the vendor selection process, and disclosing interest. The District has indicated that they will implement corrective action to address the recommendations.

Greenburgh Eleven Union Free School District

Internal Controls Over Information Technology

2009M-86

9th Judicial District

(Fiscal Stress District)

The District did not adopt a District-wide security plan, disaster recovery plan, or ensure that unauthorized software was not installed on a District computer. They also did not ensure that access rights were being terminated when individuals left District service. Unauthorized software was  installed on a District computer, and 13 individuals that had left District employment still had access rights to the computer system. Finally, it was found that District personnel use flash drives that are not secured both on the District’s computers and at home.

6 recommendations

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

The District has specifically agreed with the recommendations pertaining to District IT security policies, a disaster recovery plan, unauthorized software and the controls to prevent the installation of unauthorized programs on District computers. The District also agreed with findings regarding the termination of user access rights once an employee has left the District, and the use and protection of flash drives. The District has indicated that they have already initiated, or is in the process of proposing corrective action to address all recommendations.

Greenburgh-Graham Union Free School District

Internal Controls Over Selected Financial Activities

2009M-71

9th Judicial District

(Fiscal Stress District)

Three out of nine board members (including the board president) did not complete the required training as set forth by Education Law.

It was also found that all nine board members did not properly disclose their interest in contracts with the Graham Windham Agency, and one board member did not properly disclose her interest in contracts with a bank.

Four District business office staff received five percent salary increases (totaling $28,430) for the fiscal years ending June 2006 and June 2007. Board minutes were reviewed for evidence that these transactions were authorized, and nothing was found to indicate the board was aware that personnel in the District business office were receiving five percent annual increases. It was calculated that the average amount of increase for other District staff with board-approved contracts or letter agreements to be 3.42 percent for the same period.

Finally, the claims auditor is under the immediate supervision of the assistant superintendent of finance, which restricts the claims auditor’s independence. The claims auditor had also provided the assistant superintendent of finance with monthly claims review reports, however, only one month was given to the board.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding board oversight, and claims auditor independence.

The District specifically agreed with the recommendations pertaining to the completion of required training for board members, the audit committee, proper disclosure of interest in contracts, board awareness in salary increases, and claims auditor duties. The District  agrees with the recommendations and will implement corrective action as soon as possible, if they have not done so already.

Greenburgh-North Castle Union Free School District Internal Controls Over Selected Financial Activities

2009M-95

9th Judicial District

None of the board members complied with the fiscal accountability legislation of 2005 that requires six hours of training on their financial oversight, accountability, and fiduciary responsibilities. The board also did not require the treasurer to submit monthly or quarterly financial reports for its review, did not audit claims or appoint a claims auditor and did not establish an audit committee to oversee and report on the external auditor.

District officials did not comply with the procurement policy, and as a result the board did not competitively bid purchase and public work contracts totaling $473,216, or solicit competitive proposals for professional services totaling $106,010.

Further, the treasurer did not perform the duties of his office such as signing accounts payable checks or preparing monthly reports. Bank reconciliations for June 2008 were not prepared until after audit fieldwork began in November 2008. The board also did not audit the claims for the District’s 2008 expenditures (totaling $2.8 million), appoint a claims auditor, or adopt written policies for claims processing or credit cards. Consequently, 1 claim paid to a District employee ($13,848), and 50 claims for credit card purchases ($4,100) were processed without proof that they were for valid District expenses.

Finally, the District has continued to use two credit cards even though the board has adopted a policy (as of November 2008) which forbids the use of credit cards.

13 recommendations

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

The District agreed with the recommendations pertaining to the signing of checks from the superintendent to the treasurer, the submission of financial reports to the Audit Committee, the approval of bank reconciliations by the treasurer, expenditure documentation, and District credit card policies. The District has indicated that they will implement corrective action to address the recommendations.

Half Hollow Hills Central School District

Internal Controls Over Payroll

2009M-130

10th Judicial District

The District has established an appropriate system of internal controls over payroll. Specific procedures have been implemented to ensure that individuals included on each payroll are bona fide District employees and are paid the appropriate amount, and receive only those benefits to which they are entitled.

Control procedures over the payroll process were also appropriate, such as adequate supervision and oversight.  Twenty-seven termination payments (totaling $1,742,958) were tested, and there were no major discrepancies.

There were no recommendations.

Hamilton Central School District

Internal Controls Over Selected Financial Activities

2008M-251

6th Judicial District

A review of twenty-seven former employees and their eligible dependents receiving post-employment health benefits revealed that the District did not have the necessary records to support over $25,000 paid annually for six individuals (22 percent of those tested). For three of the individuals receiving benefits (totaling $9,979), there were no personnel folders or other employment records.

The treasurer’s cash disbursement duties for manual checks and wire transfers are not properly segregated; however, management has provided for routine reviews of related treasurer’s transactions by a BOCES central business office employee.

3 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding post-employment health benefits, manual checks and wire transfers.

The District has specifically agreed with the recommendations pertaining to the establishment of policies and procedures for the post-employment benefit process, and reviewing all relevant employee information to determine that they are entitled to the benefits. The District also agreed that the treasurer’s duties pertaining to the post-employment benefit process should be reviewed. The District has indicated that corrective action will be implemented in order to address all recommendations.

Hamilton-Fulton-Montgomery BOCES  Internal Controls Over the Central Business Office Shared Service

2009M-89

4th Judicial District

The BOCES did not define the level of authorization required to process transactions or establish standard authorization forms to be used by the Districts. The system also did not adequately control access to district financial data. As a result, there is a likelihood that errors and irregularities could occur and neither BOCES officials nor component district officials would detect them in a timely manner.

Central business office transactions involving the four participating districts were reviewed. There was a lack of segregation of duties over payroll and accounts payable, which significantly increases the likelihood that errors may occur.

The Central business office financial accounting software allows access rights to be assigned based on specific user tasks and functions. It was found that BOCES officials had not established policies and procedures for the addition, deletion, and modification of user rights, nor did they assign access rights based on each user’s duties. Thirteen users out of 28 tested, had access rights that were not necessary for the completion of their duties. There were also areas in need of improvement concerning passwords.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the central business office.

The BOCES agreed with the recommendations specifically pertaining to the segregation of duties, documented authorization of employee and vendor changes, the financial accounting system, and user access rights. The BOCES has indicated that they will implement corrective action as soon as possible to address the recommendations.

Hammondsport Central School District

Internal Controls Over Selected Financial Activities

2009M-61

7th Judicial District

The board did not appoint an independent claims auditor in accordance with the Department’s guidance. Instead, the board appointed a BOCES employee to serve as the District’s claims auditor. The District’s budgeted appropriations for BOCES services for the 2008-09 fiscal year, represent 10 percent of the District’s general fund budget. The District’s significant spending for BOCES services results in an independence impairment for the claims auditor who, as a BOCES employee, is approving District payments to her employer.

3 recommendations

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

The District specifically agreed with the recommendations pertaining to the appointment of a claims auditor, the segregation of payroll duties, and review of the bi-weekly payroll log. The District has since implemented corrective action to address the recommendations.

Hendrick Hudson Central School District  Internal Controls Over Selected Financial Activities

2009M-65

9th Judicial District

The District’s purchasing policy is inadequate and does not comply with General Municipal Law because the policy does not require District officials to seek competition or include procedures to be used when procuring professional services. The District obtained the services of 14 of 23 professional service providers who were paid $540,822 for services such as legal, nursing, and physical therapy without seeking competition through Requests for Proposals (RFPs) or quotations. It was also found that the policy does not require written agreements with professional service providers. There are no written contracts for 14 of 36 special education service providers, who were paid a total of $119,447 for services provided during the 2007-08 fiscal years. District officials also did not select the lowest priced auditing firm and did not document why the highest priced firm ($18,000 more than the lowest bidder) was selected for auditing services.

Computer equipment and data were also not properly safeguarded due to a lack of internal controls. The District’s server is located in an unsecured room that does not have proper climate control or smoke detectors. The District also does not have implemented access controls to ensure proper segregation of duties and to limit access to the business application based on job responsibilities. A disaster recovery plan has also not been developed.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding procurement and information technology.

The District has agreed with the recommendations specifically pertaining to user access rights, auditing services, a disaster recovery plan, updating the procurement policy, special education contracts, and the information security policy.

The District has already implemented corrective action to address many of the recommendations, and will amend all  concerns as soon as possible.

Indian Lake Central School District

Internal Controls Over Payroll Processing

2009M-67

4th Judicial District

There were internal control weaknesses over the District’s payroll process. There were no written procedures in place for processing payroll, which resulted in the treasurer’s development of her own informal procedures. The only oversight over the process occurs when the superintendent reviews and certifies each payroll; however, recorded hours are not traced back to timesheets, salaries and hours are not verified, and recorded payment amounts are not compared to actual checks.

The treasurer also has administrative rights to the payroll software application, which essentially gives her control over the entire payroll process.

No significant deficiencies were noted, however, the District should strengthen their payroll policies in order to prevent the possibility of errors in the future.

3 recommendations

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

The District agreed with the recommendations pertaining specifically to the adoption of procedures for the employees responsible for the preparation of payroll, the independent review of payments, and the proper administration of rights to the payroll software.

The District will implement corrective action to address the recommendations as soon as possible, if they have not already done so.

Johnson City Central School District

Internal Controls Over the Treasurer's Duties and User Access Rights

2009M-30

6th Judicial District

The District’s internal controls were evaluated for the cash receipt and disbursements process, purchasing, payroll and personnel services, information technology, and financial oversight. It was determined that risks do exist within the treasurer’s duties and user access rights to the financial software.

Risks included a lack of appropriate controls to adequately segregate the treasurer’s duties, and although the District hired consultants to help the treasurer with her duties, this assistance does not provide for the segregation of duties within the phases of a transaction. Additionally, the financial system administrator was involved in the District’s financial operations, and audit logs were not reviewed. The payroll clerk also had the ability to change user access rights in the accounts payable function of the financial software.

2 recommendations

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

The District has indicated that the items that are stated in the report resulted in a change with how the duties in the business office are segregated. The District also agreed with the findings regarding the segregation of duties of the treasurer, and the financial software. The District will submit a more detailed corrective action plan within 90 days.

Kenmore-Town of Tonawanda Union Free School District Financial Condition and Internal Controls Over Procurement

2009M-21

8th Judicial District

The District has accumulated in excess of $22 million that should be used to benefit taxpayers by paying one-time expenditures, funding necessary reserves, reducing debt and/or reducing the tax levy, in accordance with applicable statutory requirements.

Additionally, for the five years ending June 30, 2008, District officials overestimated expenditures by a total of $43.5 million, and underestimated their revenues by nearly $23 million.

While the District appropriates approximately $10 million in fund balance each year, it is not needed because the District’s budgetary practices have consistently resulted in operating surpluses totaling $13.4 million. As of June 2008, reported reserves, trust accounts, and compensated absences amounted to $27.5 million, of which $12.4 million should not have been reserved and/or were misreported.

District officials improperly used blanket purchase orders to circumvent procurement requirements, and certain departments do not properly use the accounting system or require annual bids.

Sixty-five purchases (totaling $506,702) were tested, and it was determined that 41 of them (totaling $298,215) were not made in compliance with the District’s purchasing policies and procedures.

15 recommendations

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

The District disagreed with the majority of the recommendations specifically pertaining to overstating the District budget, money in the debt reserve, discontinuing the worker’s compensation and the unemployment insurance reserves, reserves and financial accounting, and the board of education notification. The District agreed with the recommendations regarding procurement policies and agency trust. The District will implement corrective action for the policies which were agreed upon, if they have not been amended already.

LaFargeville Central School District Financial Condition

2009M-59

5th Judicial District

District officials did not use available fund balance as a financing source in each year’s budget, which led to excessive fund balances in the general fund, yet District officials continued to increase the tax levy. The tax certiorari reserve was overfunded by $109,283, the retirement contributions reserve was overfunded by at least $80,000 and moneys in the reserve were improperly withdrawn and used for other purposes besides retirement contributions.

Further, the unemployment insurance reserve was not formally established, the unemployment insurance and property loss reserves have had little to no activity, and a portion of the moneys in the Employee Benefit Accrued Liability Reserve (EBALR) were set aside to pay ineligible payroll-related costs.

9 recommendations

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

The District agreed with the recommendations specifically pertaining to financial oversight, cash receipts and disbursements, payroll, personnel services, Capital Reserve Fund, and internal controls.

The District has indicated that they will implement corrective action as soon as possible to address the recommendations.

Lansing Central School District

Internal Controls Over Selected Financial Operations

2009M-54

6th Judicial District

(Fiscal Concern District)

The significant changes in District management have contributed to a weak control environment. The District’s internal controls over financial reporting, the treasurer’s duties, and the purchasing and claims processing functions were poor.

Incorrect audit adjustments were made, which resulted in the board and administrators believing that they had less than a $20,000 fund balance in the general fund at June 30, 2008 when in fact, they had almost $1.7 million, which is nearly twice the amount allowed by law. The District’s fund balance was significantly understated because accrued liabilities ($1.5 million), compensated absences ($550,000), and reserves for encumbrances ($90,000) were overstated, and the Employee Benefit Accrued Liability Reserve (EBALR) was understated.

The treasurer’s report presented to the board each month contained multiple errors, and the business official failed to identify the errors during their monthly review and approval of the reports. The board also failed to ensure that the treasurer prepare and present budget status reports to the board, as required.

Finally, the purchasing agent did not approve all purchase orders prior to orders being placed with vendors and competitive bidding processes were not always followed. The board also did not provide for a proper audit of claims, and they did not audit claims or appoint a claims auditor to perform the function until January 2008.

14 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding control environment, financial reporting, treasurer’s duties, purchasing and claims audit.

The District agreed with the recommendations specifically pertaining to the control environment and developing policies and procedures, the surplus fund balance, budget status reports, as well as purchasing and claims audit. The District has already made significant changes to strengthen controls, and has indicated that they will implement corrective action to address the remainder of the findings.

Levittown Union Free School District

Internal Controls Over Budgeting and Financial Operations

2008M-249

10th Judicial District

For a number of years the District has exhibited poor budget practices, which were characterized by unrealistic budgets and over-expended appropriations. The District has also accumulated millions of dollars of excess monies in reserve funds and has made purchases that did not comply with District policies. Additionally, they have paid for unearned administrative benefits and poorly documented overtime. Controls over disbursements and IT operations were also weak.

Estimates of revenues and expenditures have often been wrong, and as a result, the District has incurred deficits of more than $6 million in 2005-06 and 2006-07. The District has also been inappropriately using reserve funds to pay for the general fund operations in a manner not allowed by law.

Of the four District reserve funds (totaling $23.8 million) at June 30, 2007, one of the reserves is unnecessary, and the other three are overfunded and not used to pay related expenses. The District did not need an EBALR, (totaling $15.9 million), because the District does not pay employees for compensated absences upon separation. Instead, EBALR was used by the District to shield excess fund balance above the legal limit and to accumulate monies to balance future budgets.

The Retirement Contribution Reserve, Workers Compensation Reserve, and the Unemployment Insurance Reserve Funds (whose balances totaled $7.9 million), were collectively overfunded by $4.7 million. The District also improperly credited $1 million in reserve interest earnings to the general fund rather than allocate the earnings to the respective reserve funds.

Further, the District did not request public bids for a purchase contract and two public works contracts (totaling $189,688) and did not solicit Requests for Proposals for procuring professional services (totaling $795,225). Credit card purchase controls were also inadequate, due to a lack of supporting documentation to support the legitimacy of credit card claims. The District paid one administrator $22,950 for leave benefits he was not entitled to, and one million dollars of overtime without evidence that the overtime was necessary and authorized. The treasurer also paid 26 claims (totaling $65,275) without approval by the District’s claims auditor. These overpayments were since rectified. 

Finally, the District should strengthen access controls and adopt a formal disaster recovery plan.

23 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding budgeting practices, reserves, purchasing, leave benefits and overtime, duties of the treasurer, and information technology.

The District agreed with the recommendations specifically pertaining to a budget that reflects the estimated revenues and expenditures anticipated for the upcoming fiscal year, and avoiding over-expending the budget. The District also agreed with the recommendations regarding the purchase order system, the establishment of reserve funds, the use of money in the EBALR, the transfer of excess funds, and the separation of reserve funds and general fund money. The District also agreed with recommendations addressing competitive bidding and written contracts, District-issued credit cards, employee wage and tax information, overtime payments, duties of the treasurer, and a disaster recovery plan.

The District has indicated that they will implement corrective action to address the recommendations where necessary.

Livonia Central School District

Cash Receipts

2009M-34

7th Judicial District

The treasurer’s duties are not properly segregated, and an inventory record of the receipt books or receipt numbers used and unused is not kept. As a result, the treasurer could inaccurately record transactions without detection.

The District’s procedures for cash receipts do not create or require an adequate segregation of duties for cash receipt processing. Because of the findings, 21 cash receipts (totaling $27,500) were tested, and there were no instances of fraud, waste or abuse.

2 recommendations

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

The District agreed with the recommendations specifically pertaining to the segregation of the treasurer’s duties, and the assurance that bank statements are delivered only to the individual who performs bank reconciliations.

Madison-Oneida BOCES  Internal Controls Over Select Financial Activities

2009M-3

6th Judicial District

The claims auditor position was not correctly established as an independent officer and the board had not provided adequate oversight of the claims audit function. The claims auditor also held the position of assistant business manager and bidding coordinator, responsible for soliciting bids and quotes for BOCES purchases which is incompatible with the claims auditor position, and is also prohibited per Education Law. The review of 64 approved warrants (totaling $36,034,747) showed that 13 warrants (totaling $9,060,210) were approved and signed by acting claims auditors. The review of 100 claims (totaling $934,392) did not identify any improper payments, two claims (totaling $20,156) were listed on warrants approved by the claims auditor after the checks were issued, and 15 claims (totaling $91,503) had not been approved by the claims auditor.

The treasurer receives cash and checks, records receipts in the computerized records, and prepares and makes deposits. BOCES officials did not independently review the treasurer’s work to mitigate this internal control weakness.

There was a difference of $44,245 in tuition revenue between the amounts recorded by the adult education division and the amounts recorded in the treasurer’s records. It is believed that this results from the adult education division not recording refunds relating to all revenues it had collected.

6 recommendations

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

The BOCES agreed with the recommendations specifically pertaining to increased interaction between the claims auditor and the board of education, the segregation of duties, cash receipt policy, and comparing enrollment data with financial data.

The BOCES has indicated that many of the improvements recommended by the report have already been implemented, while the work of designing feasible and responsible changes to address the others will continue.

Marlboro Central School District

Internal Controls Over Selected Financial Operations

2009M-57

3rd Judicial District

Three out of seven board members failed to complete the required fiscal oversight training, which does not set the proper "tone at the top", which contributed to the weaknesses which were found in the District's internal controls.

District officials failed to comply with competitive bidding requirements and the District’s own purchasing policies when procuring goods and services. Competitive bidding was not used for four purchases (totaling $49,273), and the District did not obtain quotations for seven purchases (totaling $30,123). Adequate policies and procedures have not been established for the processing of District claims. There were exceptions with 16 claims (totaling $16,260).

The policies and procedures established for preparing and disbursing payrolls, and for maintaining time records, were not sufficient, and 17 payments (totaling $16,288) were made without adequate time records and proper authorization. The board also did not properly authorize certain appointments and conditions of employment.

Finally, internal controls over information technology were not appropriately designed to safeguard District assets, and a formal IT security or disaster recovery plan was not established.

12 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding mandatory board member training, purchasing and claims processing, payroll, and information technology.

The District has indicated that they are in agreement with the recommendations specifically pertaining to competitive bidding practices, statutory bidding requirements, claims processing, payroll policies, board authorization for payroll, time records, and the establishment of a disaster recovery plan. The District stated that they will implement corrective action to address the recommendations.

Merrick Union Free School District

Internal Controls Over Payroll and Fuel Card Purchases

2009M-60

10th Judicial District

The District did not properly segregate duties in payroll and District officials have not developed written procedures governing payments to employees who waive their right to participate in the District’s health insurance plan. As a result, the District paid four employees for 386 hours of overtime, totaling $15,260 without prior written authorization.

The District did not close an unused fuel purchase card account for over a year, even though the District made their fuel purchases from another vendor.  Forty-eight out of 62 transactions reviewed (from January 2007 through May 2007), were not authorized and approved until October 2007. A list of authorized users for the fuel purchase cards was also not maintained.

10 recommendations

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

The District agreed with the recommendations specifically pertaining to approval and documentation of overtime, internal control procedures, health insurance, payroll processing, payroll clerk duties, and the documentation of fuel purchase card use.

The District has indicated that they will implement corrective action to address the recommendations.

Milford Central School District

Information Technology

2009M-5

6th Judicial District

The board has not effectively established adequate policies and procedures for safeguarding computerized data. The District has not adopted policies relating to user access rights, passwords, computer usage, and access controls over the treasurer’s computerized signature disk. Despite these risks, no significant occurrences of unauthorized activity were identified.

8 recommendations

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

District officials agreed with the recommendations pertaining to the adoption of policies over user access rights, strengthening the duties of the treasurer, network passwords, and ensuring the protection of confidential data. The District has indicated that they will implement corrective action to address the recommendations.

New Hyde Park-Garden City Park Union Free School District

Internal Controls Over Selected Financial Activities

2009M-75

10th Judicial District

The board had not adopted formal policies and procedures related to wire transfers and the informal procedures used by management were not always followed. As a result, 53 of 72 wire transfers tested (totaling $5.3 million) were either not approved, or not approved in a timely manner.

The District also needs to improve controls over its information technology system. The Board has not adopted a comprehensive computer security policy that addresses the proper use of computer assets. Computer equipment and data also were not adequately protected from environmental factors, such as fire and excessive temperature. There is also no disaster recovery plan.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding wire transfers and information technology.

The District agreed with the recommendations specifically pertaining to internal and external wire transfer controls, access to financial data, a disaster recovery plan, and the protection of the District server. The District has indicated that it will implement corrective action as soon as possible to address the findings.

New York City Department of Education (NYCDOE)

Monitoring of Supplemental Educational Services Providers

2007-N-22

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

(Contract for Excellence District)

Supplemental Educational Services (SES) are federally funded tutoring services that are offered to low-income students at elementary, middle, and high schools, where a significant portion of the student population is not meeting certain academic performance goals. In the 2006-07 school year, the NYCDOE contracted with 108 SES providers and paid them more than $74 million for their tutoring sessions with more than 55,000 students.

The providers are to be paid on the basis of student attendance at the tutoring sessions. The payments are based on attendance data submitted by the providers. However, we found this data is not always reliable, and as a result the NYCDOE is at risk of overpaying the providers.

It was found that some providers could not provide students attendance sheets. In other instances, the provider entered onto the NYCDOE system that a student attended a full tutoring session when the attendance sheet indicated that the student left early. Many other attendance sheets were incomplete, pre-printed with start, and end times and/or not signed by the students. To reduce this risk, it was recommended that the NYCDOE address certain questionable attendance recordkeeping practices and establish a process for testing some of the providers’ attendance data on a routine basis.

In some of the English Language Arts/Reading Math tutoring classes, the class size exceeds the limit specified in the contract, which makes it difficult for the students to receive adequate attention from the tutors.  The NYCDOE also lacks a sufficient number of monitors to properly cover over 1,000 sites to make sure class sizes are adequate.

All provider employees who work with SES students must be checked for criminal histories and be cleared to work with children. However, it was found that 37 employees at 10 out of the 26 sampled providers tested, did not have the proper clearance to work with children.  Also, 156 other employees at 10 of the providers may be working with students without the proper clearance status.

11 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding student attendance, proper attendance recordkeeping, class size, and background checks for SES employees.

The NYCDOE agreed with the recommendations specifically pertaining to attendance sheets, adhering to the attendance practices in the SES manual, modification of the SES manual, monitors for off-site locations, investigating whether 156 individuals actually provided SES services, and conducting routine background checks for all employees that will be working with students.

 The NYCDOE has agreed to implement corrective action to address the recommendations, if they have not done so already. However, the NYCDOE did disagree with the recommendation regarding the request of information from SES providers at regular intervals and comparing the payroll information.

New York City Department of Education (NYCDOE)

Non-Competitively Awarded Contracts

2008-N-1

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

(Contract for Excellence District)

During the three fiscal years ending June 30, 2008, the NYCDOE awarded 3,183 contracts (totaling $6.2 billion) of which 2,488 (totaling $4.3 billion), could have been awarded competitively.  Of those 2,488 contracts, 291 contracts, which met or exceeded a $100,000 threshold, were awarded upon the approval of the NYCDOE Committee on Contracts. These 291 contracts totaled about $342.5 million, including 280 contracts (96 percent) with a value of about $327 million categorized as “other special circumstances”. Of the remaining 11 contracts, 10 were categorized as “sole source” and one was categorized as a “grant proposal”.

One hundred seventy-three of the 291 non-competitive contracts during the audit period (59 percent) had start dates prior to the committee meeting at which the contract was approved.

The NYCDOE also lacked documentation to support its compliance with applicable procurement requirements for non-competitive contracts submitted to the Committee on Contracts for approval.  The NYCDOE was also unable to provide any documented analysis regarding the cost-effectiveness of the decision not to bid these contracts (totaling $14.7 million).

It was concluded that the category of “other special circumstances” which accounts for the vast majority of contracts submitted to the Committee on Contracts, needs to be clarified in NYCDOE’s Procurement Procedures.

Finally, despite NYCDOE’s requirements that contract work should not start before formal approval is given, work on many of the non-competitive contracts did start before such approval.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding non-compliant contracts.

The NYCDOE specifically agreed with the recommendations pertaining to competitive procurements, destruction of contract documentation, meeting minutes, revision of the Procedures Manual, and contract approval.

The NYCDOE has agreed to implement correction action where necessary.

New York City Department of Education (NYCDOE)

School Nutrition

2008-N-15

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

(Contract for Excellence District)

There was widespread non-compliance for promoting good nutritional practices in New York City’s public schools. There has been a significant failure on the part of the NYCDOE to provide an appropriate degree of oversight in this important area of school operations.

The meals that are served to students in New York City public schools must meet nutritional guidelines that are regulated by the Federal Government. The meals are also expected to conform to daily menus developed by the NYCDOE.  When the October 2008 daily menus were examined for the proper nutrients, caloric and fat content, it was found that the menus generally met nutritional guidelines.

Vending machine rules were routinely violated by many of the sample schools. At 20 of the 30 schools, school stores, and/or vending machines were routinely selling items during the school’s lunch periods, in direct competition with the lunches, and at 21 of the 30 schools, many of these items had not been approved for sale because they were non-nutritional items. Officials were aware of their schools’ non-compliance with this, however, they were either unwilling, or felt unable to bring the schools into compliance. This was mostly driven by the fact that money from the sale of the competitive foods was used to subsidize extracurricular activities at the schools.

9 recommendations

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

The NYCDOE agreed with the recommendations pertaining to competitive foods, vending machines, bake sales, training, and the wellness policy.

The NYCDOE has indicated that they plan to implement corrective action as soon as possible to address the recommendations.

North Salem Central School District

Internal Controls Over Selected Financial Operations

2009M-31

9th Judicial District

District officials paid three vendors ($186,901) without soliciting competitive bids, and also paid two professional service providers ($144,269) without seeking competitive proposals or quotations. We also found that the District’s policy allowed for certain purchases that were in conflict with General Municipal Law (GML). For example, District officials contracted with a vendor to provide services for $204,000. They made additional equipment purchases (totaling $75,802) from the vendor not covered under the agreements which were not competitively bid.

A sample of 10 laptops (purchased by the District between July 2007 through June 2008) were tested, and at first, the District was unable to locate any of the ten laptops. After an extensive search, seven of the ten laptops were located. Three (totaling $3,646) were not found because a record was not maintained of which department employees were given possession of the laptops.

Controls over the treasurer’s two signature disks were also not adequate. The clerk issued a check in her own name for $3,000, and cashed it. She then manually voided the check in the accounting records.

Finally, the director of business administration and the treasurer have access to all aspects of the District’s computerized financial system along with system administrator rights to the system.

9 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding purchasing, cash disbursements, and access to computerized data.

The District agreed with the recommendations specifically pertaining to the budget transfer process, fuel inventory, competitive bidding, legal services, architectural services, laptop computers, cash disbursements, and access to computerized data. The District has indicated that it will implement corrective action to address the recommendations.

Norwood-Norfolk Central School District  Financial Condition

2009M-69

4th Judicial District

(Fiscal Concern District)

It was found that general fund revenues were overestimated in total by more than $1.5 million. The District also relied on the appropriation of over $1.2 million of fund balance from July 2002 to June 2006 to fund expenditures. The District’s unreserved fund balance declined from $851,000 in July 2004, to a deficit of $346,000 as of June 2006.

In June 2008, the unreserved fund balance was reported to be almost $223,000, but analysis determined that the unreserved fund balance in June 2008 was overstated.

The school lunch fund has also had a fund balance deficit for the last six years, fluctuating from a $33,105 deficit in June 2003, to a deficit of $25,114 in June 2008. The General fund transferred $60,000 over the last four years, and paid $32,000 in retroactive payroll expenditures for the school lunch fund in 2007-08. It is unlikely that the school lunch fund will be able to generate an operating surplus and return the $111,000 inter-fund payable to the General fund in the near future.

1 recommendation

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

The District agreed with the recommendation stating that the board should analyze the school lunch fund and determine whether the fund can repay the General fund, and if the General fund is not going to be repaid, District officials should make the appropriate accounting entries.

The District had indicated that they will implement corrective action to address this recommendation.

Olean City School District

Internal Controls Over Information Technology and Purchasing

2009M-56

8th Judicial District

The District did not develop comprehensive information technology risk assessments and disaster recovery plans, did not properly secure all of its information technology hardware, did not properly separate user access and administrative functions within applications, and did not require proper computer password and access protocols.

Further, the District did not follow General Municipal Law or its own procedures because it did not competitively bid three commodities (totaling $103,100). If the District had used the State-awarded contract to purchase its fuel, it could have saved over $1,200 (eight percent). The District did not obtain Requests for Proposals (RFPs) for three vendors, who received a total of $376,000.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding purchasing and information technology.

The District agreed with the recommendations specifically pertaining to access to server rooms and other computer safety measures, security risk assessment, a disaster recovery plan, systems administrator, and system permissions. The District also agreed with the recommendations regarding competitive purchasing requirements and District policies, and the amendment of procurement procedures to include professional services. The District has indicated that they will implement corrective action to address the recommendations.

Ontario-Seneca-Yates-Cayuga-Wayne BOCES  Reserve Funds and Internal Controls Over the Computerized Financial System

2008M-266

7th Judicial District

BOCES officials did not clearly disclose to the districts the allocation of over $1.7 million in surplus funds to reserves, nor obtain the board’s approval for the allocations. Further, these allocations contributed to the growth of reserves that, at June 30, 2007, contained more than $571,000 in non-permissible or unauthorized funds.

The BOCES allocated $1,733,808 of operating surpluses to reserves during the 2005-06 and 2006-07 fiscal years, but did not identify those allocations in its fiscal year-end reporting of actual expenditures to the school districts. In 2006-07, these allocations comprised $1,242,170 (44 percent) of BOCES total operating surplus for that year.

Of BOCES’ seven reserves (with a combined balance of approximately $6.6 million), two were overfunded or unauthorized. These reserves contained excess funds totaling more than $571,000.  BOCES officials allocated $1.6 million to the Employee Benefit Accrued Liability Reserve (EBALR) over two fiscal years, resulting in a balance of over $2 million in June 2007. Approximately $277,000 was for non-permissible purposes.

Internal controls over BOCES’ computerized financial system were not appropriately designed during the audit period. Two business office employees with financial responsibilities had powerful system-level administrative access rights which were not necessary for their job duties.

6 recommendations

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

The BOCES agreed with the recommendations specifically pertaining to reserve funds and compliance with statutory requirements, prior approval for the allocation of funds, surplus funds, Retiree Health Insurance Reserve moneys, reduction of the reserves to reasonable levels, and user access rights.

The BOCES  has indicated that they have taken, or plan to take, limited corrective action to address the recommendations.

Panama Central School District

Internal Controls Over Cash Receipts

2009M-90

8th Judicial District

Internal controls over the cash receipts process are not appropriately designed or operating effectively. The board has not adopted written policies for cash receipts, segregated critical duties so that one individual does not control all phases of a transaction, or properly safeguarded District assets.

Of the $23,687 documented as received for the After-School Program by the program manager, only $18,927 was remitted to the business office. Purchases only totaled $3,287, and $1,473 was unaccounted for. Additionally, for the extraclassroom activity fund, instead of depositing monies, there were seven instances (totaling $1,102) when District officials used cash receipts to make purchases or pay vendors.

The treasurer’s duties were not properly segregated, and the business manager does not routinely review supporting documentation for the cash receipts. No major discrepancies were found during the testing of agency fund receipts.

5 recommendations

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

The District specifically agreed with the recommendations pertaining to deposits, oversight by the business manager, the maintenance of adequate ledgers of extraclassroom activity receipt activity, and the proper segregation of duties within the cash receipt process. The District has indicated that corrective action will be implemented to address the findings contained in the report.

Raquette Lake Union Free School District  Internal Controls Over Financial Operations

2009M-64

4th Judicial District

The board has not designed adequate internal controls over the District’s financial operations, specifically regarding the segregation of duties within the business office. The board did not comply with Education Law regarding fiscal training for board members, and did not ensure that required financial reports were prepared and filed.

None of the five board members who served during the 2006-07 school year had attended the required financial oversight training. They chose not to attend.

Additionally, the board has not ensured that an annual financial report is filed with the State Education Department. The lack of accurate and timely financial reports prevents the board from having sufficient information to make informed financial decisions for the District.

The treasurer’s duties also were not properly segregated.

4 recommendations

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

The District agreed with the recommendations specifically pertaining to the completion of the mandatory board member financial oversight training, budget status reports, the annual financial report, and adequate oversight over the treasurer’s duties. The District has indicated that they are already in the process of implementing corrective action to address the recommendations contained in the report.

Red Creek Central School District

Internal Controls Over Selected Financial Activities

2009M-45

7th Judicial District

The balance retained in the District’s Employee Benefit Accrued Liability Reserve (EBALR) was not calculated properly. The liability and insurance reserves have had no activity since their creation and, therefore, are not necessary. The District has overfunded these three reserves by approximately $1.28 million.

A formal District-wide security plan has not been developed and the disaster recovery plan that is in place is neither up-to- date nor complete. There are also no policies or procedures for the use of mobile storage devices, such as flash drives.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding reserve funds and information technology.

The District has agreed specifically with the recommendations pertaining to policies establishing how reserves will be funded, the maximum balance, and how the reserve money will be used. The District also agreed with the recommendations regarding the reduction of the balance in the EBALR, the elimination of the insurance reserve and liability reserve, the development of a formal District-wide security plan, a disaster recovery plan, and appropriate policies for the use of mobile storage devices.

The District has indicated that a corrective action plan will be implemented to address the recommendations.

Rensselaer-Columbia-Greene BOCES (Questar III)

Internal Controls Over Selected Financial Operations

2009M-2

3rd Judicial District

The BOCES has not developed a disaster recovery plan, nor do they correctly control local administrator rights, review financial management system audit logs, or have adequate physical security over its IT assets.

One hundred forty-two claims (totaling $786,238) were reviewed and it was found that the claims all contained sufficient documentation to support that they were valid and necessary BOCES expenditures.

5 recommendations

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

BOCES officials agreed with recommendations specifically pertaining to the development of a disaster recovery plan, the implementation of procedures over user access, strengthening controls over physical access of the IT system, as well as properly utilizing audit logs in the financial management system. BOCES officials have indicated that they will implement corrective action in order to address the recommendations.

Rocky Point Union Free School District

Internal Controls Over Payroll

2009M-83

10th Judicial District

District officials have adopted payroll policies and procedures, but there is room for improvement in the areas of segregation of duties, review of salary data input, certification of payroll, and the calculation and review of separation payments.

The payroll clerk’s duties were not properly segregated, because this individual controls two of the three key aspects of the internal control processes within payroll: transaction authorization and recordkeeping. Certification of payrolls were also not performed properly, because the superintendent is not provided with a list of employees and their payroll amounts.

Finally, District officials do not require the review and approval of the calculation of separation/retirement payments, which resulted in an overpayment of $4,974.

3 recommendations

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

District officials have indicated that they agree with the recommendations specifically pertaining to the segregation of duties performed by the payroll clerk, the oversight by the superintendent over the payroll register, as well as the business manager’s review of separation/retirement payment calculations. The District has indicated that they will implement corrective action to amend the recommendations.

Rye City School District  Internal Controls Over Payroll and Purchasing

2009M-17

9th Judicial District

The District paid $2,246,167 to custodians during the audit period including $430,286 or 19.15 percent for overtime. Although the director approves all timesheets for payment, he does not verify that the hours claimed as worked are accurate. The superintendent reviews the payroll transaction summary report and the payroll changes report, but does not compare the payroll to previous payrolls or overtime payments to timesheets to identify excessive use of overtime or any other discrepancies.

District officials have not developed written procedures for procuring professional services. As a result, the District retained the services of 15 professional service providers without requesting competitive proposals and paid these vendors ($960,640) during the audit period. District officials did not always solicit competition when required. Eighteen purchases and public works contracts (totaling $1,752,420) were tested, and it was found that six contracts (totaling $250,330) were not competitively bid.

5 recommendations

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

The District has accepted and agreed with the recommendations specifically pertaining to custodial overtime, payroll certification, purchasing, professional services, competitive bidding, security logs, and certifying payroll. The District has indicated that they will use the recommendations to strengthen controls.

Rye Neck Union Free School District

Internal Controls Over Criminal Background Checks and Procurement of Professional Services

2009M-100

9th Judicial District

Background checks were not performed for 17 of the 22 independent contractors who had direct contact with students. District officials have since been proactive in addressing criminal background checks. They have since developed new procedures to ensure criminal background checks are obtained for independent contractors who are in direct contact with students.

The District also retained the services of 23 professional service vendors without requesting competitive proposals or other forms of competition, and paid these vendors $461,419 during the audit period.

2 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding criminal background checks and professional services.

The District agreed specifically with the recommendations pertaining to background checks for all independent contractors in direct contact with students, as well as the criteria of how professional and consulting services shall be purchased. The District has agreed to implement corrective action to address the recommendations.

Sharon Springs Central School District Financial Operations

2009M-52

3rd Judicial District

The District has not adopted comprehensive policies and procedures relating to acceptable computer use for non-teaching staff, user access rights to the financial software, and passwords. The board has also not developed a disaster recovery plan or adequate data back-up procedures to protect the District from the potential loss of data.

Additionally, the business manager did not ensure that internal controls over payroll and cash receipts functions were designed appropriately. The treasurer’s duties also were not properly segregated which increases the risk that errors or irregularities could occur or remain undetected.

6 recommendations

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

The District agreed with the recommendations specifically pertaining to District computer use, user access rights, appropriate passwords, a comprehensive disaster recovery plan, the segregation of incompatible duties within payroll and the cash receipts process. The District has indicated that they plan to implement corrective action to address the recommendations.

Skaneateles Central School District

Internal Controls Over Selected Financial Operations

2009M-55

5th Judicial District

The treasurer performs incompatible duties with little oversight, and it is possible that the treasurer could issue a check or receive cash, and alter records and manipulate accounts to prevent detection. Various District receipts (totaling over $21 million) were tested during the audit period, and no irregularities were disclosed.

The District did not have written policies and procedures providing guidance and oversight over separation payments. As a result, the District paid a former custodial supervisor and a former custodian separation payments (totaling $10,847) which were not authorized by the board and to which they may not have been entitled.

Further, the board appointed the secretary to the business manager to be the claims auditor. However, the Regulations of the Commissioner of Education require that the claims auditor must be independent of the District’s purchasing and accounting functions. The business manager’s secretary is ineligible for the claims auditor position since her duties include entering vendors and requisitions into the computerized accounting system. The District also made payments to vendors before transactions were properly audited and authorized. One hundred thirty-three checks (totaling $242,168) were tested, and it was found that all were printed and released to vendors prior to being audited and authorized for disbursement.

District officials have not developed a disaster recovery plan relating to the computerized accounting system. The District did not adequately protect the server of the computerized accounting system by requiring it be located in an area protected from potential water damage.

11 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the treasurer’s operations, separation payments, claims processing, and information technology.

The District agrees with the recommendations specifically pertaining to the treasurer’s operations, repaying the overpayment to the district, the internal claims auditor, a disaster recovery plan and the secure placement of the server. The District has indicated that they will implement corrective action to address the recommendations.

Sweet Home Central School District  Financial Condition and Internal Controls Over Procurement

2009M-40

8th Judicial District

The District has not ensured that budget estimates are reasonable, and has not established and maintained reserves in accordance with statutory requirements. It was found that the District routinely overestimated appropriations and underestimated revenues. Poor budget estimates resulted in revenues exceeding expenditures by approximately $7.9 million, in total, over the last five fiscal years, on an average total budget of about $55 million. District officials also could not provide adequate justification for the establishment and funding of the Debt Reserve and adequate documentation to support the funding levels of two other reserves.

Further, the District’s fund balance was not used as intended because the District reported operating surpluses in each of the last five fiscal years. Therefore, the fund balance actually increased each year, rather than decreased.

District officials also failed to comply with General Municipal Law (GML) requirements and/or the District’s own purchasing policies when procuring goods and services. Of the 42 purchases (totaling $832,323) tested, it was found that 24 purchases (totaling $679,876) lacked adequate documentation to indicate whether the District was complying with its procurement policy and General Municipal Law.

7 recommendations

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

The District agreed with the recommendations specifically pertaining to the fund balance surplus and the benefit to District taxpayers, the budget transfer policy, year-end encumbrances, and competitive bidding.

The District somewhat disagrees with the recommendations regarding the use of statutorily restricted moneys to pay debt and return other moneys to the unreserved General fund balance, and appropriation estimates for the annual budget.

The District has indicated that it will implement corrective action to address the recommendations as soon as possible.

Van Hornesville-Owen D. Young Central School District

Internal Controls Over Non-Payroll Cash Disbursements

2009M-81

5th Judicial District

The District’s internal controls over non-payroll cash disbursements had been appropriately designed and were operating effectively. There were no significant deficiencies in the records that were examined.

There were no recommendations.

VESID - White Plains District Office  Payments Made During the Period September 1, 2007 through December 31, 2008 to the Dell Preferred Account

2008-BSE-4-006

Payments made during the period September 1, 2007 through December 31, 2008 by the White Plains District Office of Vocational and Education Services for Individuals with Disabilities (VESID) to the Dell Preferred Account (Dell) were examined. These payments were for computers and/or related equipment (computers) for use by people with disabilities (consumers). The objectives of the exam were to determine whether the procurement of computers was appropriate and the consumers received the computers.

The District office paid Dell $43,443 during the period September 1, 2007 through December 31, 2008 for computers to be used by 24 consumers. Vouchers, supporting documents, and consumer files were all reviewed.

It was found that District office payments to Dell were supported by appropriate documents in all material respects and that the consumers contacted received the computers. However, the Department has not issued formal guidance to VESID regarding the disposal of State-owned computers used by its consumers.

1 recommendation

The report’s recommendation stated that VESID should develop appropriate guidance to enable VESID managers to comply with state laws regarding the disposal of State-owned computers when a consumer reaches the employment goal in the IPE.

West Hempstead Union Free School District  Internal Controls Over Selected Financial Operations

2009M-41

10th Judicial District

The board inappropriately appointed an independent contractor as District treasurer and did not properly segregate her duties.

The District’s procurement policy also did not require using competition when obtaining professional services. Payments were reviewed (totaling $1,040,129) that the District made to 14 professional service providers. It was found that the District paid 11 of these professionals $951,967 without first obtaining competition. The District also did not enter into written agreements with 5 out of the 14 service providers (who were paid a total of $150,610).

Finally, District controls over computer hardware and data should be improved, and a disaster recovery plan implemented. The District should implement policies to strengthen the safeguarding of the District’s IT resources, systems, and financial data.

10 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the treasurer’s duties, professional service contracts, and information technology.

The District agrees with the recommendations specifically pertaining to appointment of the privately contracted treasurer and the segregation of his/her duties, the formal approval of wire transfers, the approval of written agreements, and continuing to develop and strengthen IT policies. The District also agrees with the recommendations regarding the review of audit logs, and the procurement policy. The District has already initiated corrective action for all but the procurement policy recommendation, and in order to address this, they will develop a revised policy for the board of education to consider.

West Park Union Free School District

Internal Controls Over Selected Financial Operations

2009M-47

3rd Judicial District

(Fiscal Stress District)

The District has not properly established internal controls, and as a result, the District is vulnerable to the possibility of errors occurring and not being detected in a timely manner. For example, the cash related duties of the business manager were not adequately segregated. There were no material discrepancies found during the review.

There were also weaknesses found in the internal controls over information technology (IT). The board has not adopted a formal written security plan or a disaster recovery plan to protect important data in case of an emergency.

The board has not sought competition through Requests for Proposals (RFP’s) for independent auditing services, which were procured for $8,700 in 2007-08.

Finally, the District has established an adequate system of internal controls over claims processing, and the controls were working effectively.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash receipts and disbursements, information technology, the procurement of audit services, and claims processing.

The District agreed with the recommendations specifically pertaining to the segregation of duties over cash receipts and disbursements, wire transfers and journal entries, and the development of a formal security and a disaster recovery plan over the District’s IT system. District officials also agreed with the revision of the procurement policy, and the solicitation of bids. The District has indicated that they will initiate corrective action to address the recommendations.

Yorkshire-Pioneer Central School District  Internal Controls Over Cash Management and the Internal Audit Function

2009M-42

8th Judicial District

There were weaknesses with regard to security of District funds and the independence of the internal auditor, which resulted in an increased risk to District assets.

The District did not update its collateral and custodial agreements for its deposits in banks. District officials also allowed a vendor to withdraw funds directly from a District bank account.

Finally, the BOCES employee serving as the internal auditor is not independent in performing the internal audit function.

3 recommendations

The report’s recommendation focused primarily on strengthening the policies and procedures regarding cash management and the internal audit function.

The District agreed with the recommendations pertaining specifically to written collateral agreements, and internal auditor independence. The District has indicated that they will implement corrective action to address the recommendations.

New York City Office of the Comptroller

Audit

Major Finding(s)

Recommendation/Response

New York City Department of Education (NYCDOE)

Audit Report on the Administration of New York State Standardized Tests by The New York City Department of Education

MD08-102A

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

(Contract for Excellence District)

The NYCDOE provides primary and secondary education to more than 1 million pre-kindergarten to grade 12 students in over 1,400 schools. Students in grades 3 through 8 take both the New York State standardized English Language Arts (ELA) Test, and the New York State standardized Mathematics (Math) Test.

This audit focused on the administration of ELA and Math tests for students in elementary grades 3, 4, and 5 only. The audit determined whether the NYCDOE has adequate internal controls over the administering of New York State standardized tests for grades 3, 4, and 5.

The NYCDOE has adequate internal controls with respect to ensuring that schools are familiar with established procedures when administering the exams at elementary schools. The schools visited were also generally compliant with the State testing guidelines, the NYCDOE handbook, and testing memoranda. However, the NYCDOE does lack sufficient preventive and detective controls aimed at deterring inappropriate manipulation of test scores, which would help to ensure the overall integrity of the assessment process.

The NYCDOE also supplies their staff with a handbook and distributes test memoranda, in an effort to keep them informed of all required procedures in administering the exams.  The NYCDOE also trains its scoring staff to help them identify testing irregularities when grading the long-answer portions of the exam.

For the most part, the schools visited complied with state guidelines and the guidelines outlined in the handbook. Review of data and documentation collected by the NYCDOE for the 2007-08 ELA and Math tests and observations conducted at the sampled schools on the day of testing did not reveal any instances of cheating.

There were, however, significant weaknesses that the NYCDOE had not addressed to help prevent or detect manipulation of test scores.  The NYCDOE should improve its oversight of testing monitors to ensure they are carrying out their duties properly and using monitoring checklists more effectively.  The NYCDOE should also re-implement the use of analytics to identify possible testing irregularities and tampering, and should institute stronger controls over the second and third sections of the tests. The NYCDOE should also formalize a process to ensure that substantiated allegations of cheating are shared with the Office of Accountability.

14 recommendations

The NYCDOE generally agreed with the audit’s recommendations, but disagreed with one and did not respond to one. The response stated, “The Comptroller’s Draft Report identifies a number of potentially valid enhancements to existing DOE processes, which DOE has either already adopted, or is considering.”  The NYCDOE response included objections to the findings, but after carefully reviewing their arguments, they were found to be without merit. By implementing or considering implementing 12 of the 14 recommendations, the NYCDOE officials confirm the benefit of the audit and their desire to improve the internal controls over standardized tests.

New York City Department of Education (NYCDOE)

Audit Report on the Department of Education's Calculation of High School Graduation Rates

ME09-065A

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

(Contract for Excellence District)

This audit was to determine if the NYCDOE properly calculated high school graduation rates. The NYCDOE provides primary and secondary education to over 1 million students, pre-kindergarten to grade-12, in more than 1,400 schools. To graduate from one of the City’s 425 high schools, a general education student must accumulate 44 credits in designated subjects, pass five New York State Regents examinations, and maintain a 90 percent attendance rate.

The graduation rate is calculated by dividing the number of graduates by the total number of students in the cohort who either graduated, dropped out, or were still enrolled. According to the NYCDOE, the 2003-2008 cohort consisted of 88,963 students, including 43,651 graduates, 17,035 still-enrolled, 18,524 discharges, and 9,753 dropouts. Using the City’s formula, the NYCDOE reported on August 11, 2008, that the four-year graduation rate increased from 58 to 62 percent between 2005-2007.

It was found that the NYCDOE needs to institute stronger controls to ensure that official records corroborate the classification of students as graduates. The review of 197 sampled graduates found that the transcripts for 19 (9.6%) of them did not appear to have evidence that the students had the required number of credits overall, or in major subjects, or had passed all of the required Regents examinations needed to graduate.

Subsequently, the NYCDOE provided internal documents from the schools for the students cited. For the most part, we were not provided with in-house transcripts or permanent record cards to indicate that the requirements for graduation were met. The documentation provided for all but two of the students, appears to support the graduation statues of these students. However, in a number of instances we are unable to determine with reasonable assurance that the documentation provided, was actually reviewed by the schools at the time the decisions to graduate the students were made.

It was also found that the schools awarded the students multiple credits for passing the same course two or more times. Questionable changes to student transcripts were made, and there was no evidence that some transcript changes were properly approved. Transcripts were also changed after graduation, and it appears that some students were classified as discharged without adequate evidence to support the classification. It was also found that parameters set by the State for classifying students as dropouts, result in a reported dropout rate that does not account for all students who have actually dropped out of school.

The NYCDOE did, however, establish a system of internal quality control reviews in an effort to ensure the accuracy of its graduation rate calculation.

11 recommendations

The report’s recommendations focused primarily on the strengthening of the policies and procedures regarding the NYCDOE transcript system, graduation requirements, traceable changes to transcripts, discharged students, and students who do not attend school.

The NYCDOE generally agreed with nine of the recommendations, disagreed with one, and did not address two. In addition, it should be noted that the NYCDOE disagreed with many of the findings upon which the recommendations are based.