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

 

TO:	The Honorable the Members of the Board of Regents Subcommittee on Audits
FROM:	Theresa E. Savo
SUBJECT:	Board of Regents Oversight – Financial Accountability
DATE:	June 1, 2005
STRATEGIC GOAL:	Goal 5
AUTHORIZATION(S):

 

Executive Summary

 

Issues for Discussion

 

            Five items are presented for discussion with the Members of the Subcommittee on Audits including:

 

1.                  Completed Audits

2.                  Requirements for School Business Officials

3.                  Key Positions in School Districts

4.                  Annual Report of the Regents Subcommittee on Audits

5.                  Status of Legislative Proposals to Improve Fiscal Accountability (Five-Point Plan)

 

Reason(s) for Consideration

 

            Update on Activities

 

Proposed Handling

 

            Discussion and Guidance

 

Procedural History

 

The information is provided to assist the Subcommittee in carrying out its oversight responsibilities related to audits of financial and reporting practices; performance audits or reviews; ethical conduct issues arising from audits; internal controls; and compliance with laws, regulations, and policies.

 

Background Information 

 

            Completed Audits – Reports are provided on a district’s internal controls, two districts’ administrative costs, and reviews of districts’ proposed budget.

 

            Requirements for School Business Officials – Information will be presented on the current and proposed requirements for school business officials for both civil service appointments and school business official certification.

 

            Key Positions in School Districts – Information will be presented on the key control positions for a school district.  These positions include board members, superintendent, treasurer, board clerk, and the internal claims auditor.

 

            Annual Report of the Regents Subcommittee on Audits – The report presents the activities of the Subcommittee and its accomplishments over the past year.

 

            Status of Legislative Proposals to Improve Fiscal Accountability (Five-Point Plan) An update will be provided on the status of the legislation.

 

Recommendation

 

            For items one through five, no further action is recommended. 

 

Timetable for Implementation

 

            N/A

 

The following materials are attached.

·              Roadmap

·              Minutes of May Meeting (Attachment I)

·              Audit Report Abstracts (Attachment II)

·              Audit Reports

 

 

Attachment I

 

MEETING OF THE REGENTS SUBCOMMITTEE ON AUDITS

May 17, 2005

 

Subcommittee Members in Attendance:

 

Regent Geraldine D. Chapey, Chair

Regent Arnold B. Gardner, Vice Chair

Regent Joseph E. Bowman

Regent Harry Phillips, 3^rd 

Discussion Items

 

Regent Chapey opened the meeting by welcoming everyone and reminding them of the ripple effect that efforts to enhance accountability are having across the globe. As an example, the European Union recently adopted international accounting standards which will impact on multi-national corporations operating in the United States.

 

Previous Meeting Minutes

 

The Members of the Subcommittee (Members) approved the minutes of the prior meeting.

 

Audits

 

Staff was available to answer questions on the following audits:

• Herricks Union Free School District SD-0105-6
• Interboro Institute 2004-T-1
• Massapequa Union Free School District S8-5-05

 

Staff was also available to answer questions on the examination of proposed budgets of:

·        Fabius-Pompey Central School District

·        Monroe-Woodbury Central School District

·        Roosevelt Union Free School District

·        Schenectady City School District

·        Enlarged City School District of Troy

 

During a discussion of the Interboro Institute audit, it was learned that the Institute has already paid the Higher Education Services Corporation for the overpayment of TAP funds. Regent Gardner asked what the policy is on paying interest on an audit disallowance. An answer will be provided at the next meeting.

 

It was also noted that the Herricks Union Free School District audit was a special review based on a complaint. The Department's web page now includes a phone and fax number, as well as an email address, to receive allegations of fraud, waste, and abuse.

Financial Condition of School Districts

 

The Members were provided with the list of districts identified as experiencing fiscal difficulty. The Office of Audit Services has analyzed 694 financial statements as of May 2005. Letters have been sent to the districts experiencing fiscal difficulty asking for a plan to address each district's financial condition.  The Department will work with the districts as needed.

 

A discussion followed regarding the selection and appointment of superintendents, building principals, and business officials. Regent Gardner mentioned that a new regulation creating a "leadership certificate" is being proposed.  Staff described the common methods used by districts to appoint a business official. Specifically, districts may use the county civil service system to establish qualifications and a list for a business manager. Other districts use the School Business Official (SBO) designation to hire a business official. The SBO requires a master's degree with additional course work as well as an internship. Regent Gardner asked that the Members be provided with all material related to efforts to strengthen regulations regarding training for business officials. Staff will provide the Members with current requirements for business officials as well as any proposed changes. 

 

A discussion then ensued regarding standards for auditors of districts. Staff explained that auditors follow professional standards for governmental audits and that there is a reference manual available to guide CPAs in the audit of districts.  The professional standards include 22 separate standards that address issues such as independence, continuing professional education, understanding internal controls, and planning and supervision. The reference manual includes topics specifically related to districts.

 

Regent Bowman expressed his concern that any focus on district administrators has to flow from the schools of education administration in the colleges and universities. He asked that the Members be provided with a list of the schools of education administration as well as the key control positions within a district. 

 

Legislative Proposal Five-Point Plan

 

Staff summarized the proposed legislation to improve district accountability that is currently being considered by the Legislature.  There are three bills being considered. Staff led a discussion of the key provisions of the proposals and also added some points of disagreement as well as enhancements to the legislation.  The Members agreed to review the document and provide any feedback they deem appropriate. Staff also agreed to provide the Members with the sponsors of the various proposals and a summary of the key issues.

 

Changes in Regulations and Legislation Related to the Accounting Profession

 

Deputy Commissioner Duncan-Poitier briefed the Members on activities related to the accounting profession. She indicated that, by next month's Regents meeting, proposed regulations will be provided to both the Subcommittee and the Higher Education Committee. Staff are meeting with the New York State Society of CPAs on June 1, 2005 to discuss the regulations.

 

The future of legislative changes related to the accounting profession is more uncertain. There is legislation in both the Senate and Assembly. The Department cannot support the Senate version.  Regent Phillips asked for copies of the proposed legislation.

 

Deputy Commissioner Duncan-Poitier also briefed the Members on the status of the investigation of the licensed CPAs involved in the audit of the Roslyn Union Free School District.

 

The Regents were interested in any role they could play in advocating for legislation. Deputy Commissioner Duncan-Poitier said that she would reach out to them on an individual basis. Regent Bowman asked for the names of the sponsors of the legislation and for talking points to help assist in the advocacy.

 

 

 

 

 

 

 

Attachment II

 

Audit Report Abstracts

Regents Subcommittee on Audits

June 2005

 

Office of Audit Services
Audit	Major Finding	Recommendations/Response
Hempstead Union Free School District SD-1003-2   10th Judicial District	$0 adjustment   The review found that the District has some of the necessary management controls in place, but identified opportunities for improvement including: the Board working together more effectively by setting an appropriate tone at the top and focusing on student performance issues, developing a long-term financial plan, developing a plan to address the deficiencies in the school lunch operations including the negative fund balance, developing a process to bill for Medicaid eligible services on a timely basis, and improving controls over cash receipts and the petty cash processes. The review also identified opportunities to improve practices related to competitive bidding, consultant contracts, use of temporary personnel, separation of duties, and reimbursement of the costs of meals and travel. Finally, the review identified a need to develop a plan to address the deficiencies in school facilities, improve inventory controls, develop a process to assure all temporary staff and consultants undergo fingerprinting and background checks, and improve controls over reporting student data.	32 recommendations   The report contains specific recommendations for improvements in governance and planning, accounting and reporting, revenue and cash management, purchasing and expenditures, facilities and equipment, and student related data.     District officials agree with the findings and recommendations and have taken action to implement some of the recommendations.
Office of the State Comptroller
Audit	Major Findings	Recommendations/Response
Riverhead Central School District S8-5-8 10th Judicial District	$0 adjustment   This audit was one of 16 conducted to determine whether district officials have established appropriate internal controls over expenses incurred on behalf of administrators and members of the Board. The audit found that the internal claims auditor reported to the Assistant Superintendent for Business instead of the Board. In addition, the internal claims auditor did not review claims for appropriateness and referred questions to individuals involved in the cash disbursement process. The District spent about $58,000 on cell phones without written policy guidance. Some of the phones had usage greater than the allotted minutes. The Board did not provide written guidance on travel and conference expenditures and detail documentation was not always available to support claims. The District spent about $9,800 for two credit cards without a policy on acceptable use. In some cases, itemized receipts or invoices did not support the credit card charges. Finally, the District spent about $13,630 for meals and refreshments without a policy defining when it is appropriate.	5 recommendations   The recommendations are for the Board to review the duties of the internal claims auditor and require that the individual report to the Board. The report also recommends a new cell phone policy be implemented and reimbursements sought for personal use. The internal claims auditor should require sufficient documentation to determine a claim complies with policy and is reasonable and necessary.  Another recommendation is to amend the old or adopt a new policy on travel related expenses. Finally, the report recommends adopting a policy outlining when meals and refreshments may be provided at meetings and events.   District officials agreed with the recommendations and plan to have them fully implemented by July 1, 2005.
Office of the State Comptroller
Audit	Major Finding	Recommendations/Response
Examination of Tentative Budgets of: Greater Amsterdam School District, and Liberty Central School District	$0 adjustment   These audits were designed to answer two questions relative to each district’s budget for the 2005-06 school year. ·        Are the District's significant revenue and expenditure projections in the proposed budget reasonable? ·        Is the District's budget structurally balanced so that recurring costs are financed with recurring revenues?   The audit found that Amsterdam’s budget was structurally balanced. However, the District should monitor the 2004-05 fund balance to ensure it does not exceed the 2 percent limitation. The report commended the District for the development of a long-range financial plan and recommended the Board establish a policy to ensure the plan is periodically reviewed and updated.   The audit found that Liberty’s budget is reasonable and structurally balanced.	1 recommendation to the Greater Amsterdam School District   The report recommends that Amsterdam prepare a corrective action plan to address each issue identified in the report.