THE
STATE EDUCATION DEPARTMENT /
THE UNIVERSITY OF THE STATE OF |
TO: |
The Honorable the Members of the Board of RegentsSubcommittee on Audits
|
FROM: |
Theresa E. Savo |
SUBJECT: |
Board of Regents Oversight – Financial
Accountability |
DATE: |
|
STRATEGIC
GOAL: |
Goal
5 |
AUTHORIZATION(S): |
|
Issues for
Discussion
Four items are presented for
discussion with the Members of the Subcommittee on Audits
including:
1.
Processes Followed in Issuing Audit
Reports
2.
Annual Report on the Activities of the
Regents Subcommittee on Audits
3.
Reporting of Violent and Disruptive
Incidents by Public Schools
4.
Completed Audits
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.
1.
Processes Followed in Issuing Audit Reports – Staff
will brief the members on different processes used to issue final audit reports.
The processes of the Office of Audit Services and the Office of the State
Comptroller will be described.
2.
Annual Report on the Activities of the Regents
Subcommittee on Audits – Department staff will present the report which
described the key activities of the Subcommittee during the 2005-2006 year.
These activities assist the Board of Regents in carrying out its oversight
responsibilities.
3.
Reporting of Violent and
Disruptive Incidents by Public Schools – Department staff will brief the
Members on the 90-day response to the Comptroller’s audit and the schools on the
Persistently Dangerous Schools list.
4.
Completed Audits
Reports are provided as
follows:
Office of Audit Services
Our
The
Office of the
State Comptroller
Written Support of Internal Controls Over the State Aid Management System
Wyandanch Union Free
Enlarged
William Floyd Union Free
For item one (Processes Followed in Issuing Audit Reports), item three (Reporting of Violent and Disruptive Incidents by Public Schools), and item four (Completed Audits), no further action is recommended.
For item two (Annual Report on the Activities of the Regents Subcommittee on Audits), it is recommended that the summary of the activities of the Subcommittee be presented to the full Board.
N/A
The following materials are
attached:
·
Roadmap
·
Minutes of the June Meeting (Attachment
I)
·
Annual Report on the Activities of
the Regents Subcommittee on Audits (Attachment II)
·
Audit Report Abstracts (Attachment
III)
·
Audit
Reports
REGENTS SUBCOMMITTEE ON AUDITS MEETING
ROADMAP
|
Date: September 11, 2006
Time: 8:30-9:30
am Location: Room 146 EB | ||
TOPIC |
OUTCOME |
WHO |
MINUTES |
Opening Remarks |
|
Chair |
2 |
Review Agenda/Minutes (Attachment I) |
Approval |
|
1 |
Follow-up on Previous Meeting |
Update |
|
5 |
Processes Followed in Issuing Audit Reports |
Update |
Spring |
10 |
Annual Report on the Activities of the Regents Subcommittee on Audits (Attachment II) |
Update |
|
5 |
Reporting of Violent and Disruptive Incidents by Public Schools |
Update |
Staff |
15 |
Audit Report Abstracts (Attachment III) |
Questions Addressed |
SED and OSC Staff |
20 |
Next Session |
Preview |
Staff |
2 |
June 19,
2006
Subcommittee Members in
Attendance:
Regent Geraldine D. Chapey,
Chair
Regent Joseph E. Bowman, Vice
Chair
Regent John
Brademas
Other Members of the Board of Regents in
Attendance:
Regent Roger B.
Tilles
Discussion
Items
Regent Chapey opened the meeting by noting
the increased interest in financial matters as exemplified by the inclusion of
an item on the Regents 24 month calendar to develop a framework to increase
awareness of the importance of financial management and accountability in all
institutions within the University of the State of
Previous Meeting
Minutes
The Subcommittee approved the minutes of the prior meeting.
Follow Up on Previous Meeting
Staff responded to follow-up questions by
informing the Members that Regent Tilles had provided an example of a school
district’s ethics statement which included a conflict of interest
statement. EMSC staff is reviewing
the document to consider the most appropriate way to share with other
districts. The members were also
informed that the Statement on the
Governance Role of a Trustee or Board Member is being updated to
reflect changes precipitated by the accountability legislation.
Audit of the New York City Department of
Education’s Administration of the Early Grade Class Size Reduction Program.
Staff from the Office of the State
Comptroller briefed the Members of the Subcommittee on the key findings of the
audit. The Regents and Commissioner
Mills asked questions to obtain a more specific understanding of the audit
findings. Associate Commissioner
Evans-Tranumn advised the Members that there has been subsequent legislation
which will enable a better monitoring of the effect of the program. Commissioner Mills concluded that the
intent of the legislation was clear and that EMSC staff must take the lead in
assessing the effect of the new legislation and in considering methods of
improved monitoring.
Annual Report on the
Activities of the
Regents Subcommittee on Audits
Staff provided the Members with a summary of
the key activities of the Subcommittee during the eight meetings held since
September of 2005. The draft report
contains nine items and was written to provide a report to the full Board of
Regents. Regent Bowman asked that
the report be changed to include a description of the extent of technical
assistance that is provided by Department staff as well as including key web
sites and publications that support increased accountability. The changes will be considered and the
report will be provided to the Subcommittee at the next
meeting.
Office of Audit Services Draft 2006-2008
Audit Plan
Staff briefed the Members of the Subcommittee
on the proposed audit coverage for the period from July 1, 2006 through June 30,
2008. The plan was developed based
on the input of the Deputy Commissioners as well as an analysis of data
collected through a risk assessment.
The Members were asked for any input they may have. Regent Tilles asked that consideration
be given to auditing placements at proprietary schools and schools of education, Regent Gardner
expressed his support for an audit of preschool special education programs in
BOCES.
Audits
Staff were available to answer questions on
the following audits:
Office
of the State Comptroller
·
Reporting of Violent and Disruptive
Incidents by Public Schools Report 2005-S-38
·
Audits of SUNY Campus Contracting Practices
Report 2005-S-37
·
·
·
·
·
·
Examination of Tentative Budgets of the
Attachment
II
Report on the Regents Subcommittee on Audits
2005-2006
In accordance with its written charge, the Regents Subcommittee on Audits (Subcommittee) assisted the Board of Regents in carrying out its oversight responsibilities for audits, ethical issues arising from audits, internal controls, and compliance with laws and regulations. The Subcommittee, which consists of five independent members, met eight times during the year. A summary of key items presented at the meetings follows.
1.
The need for internal controls
and fiscal accountability dominated the discussions in the Subcommittee
meetings. Members were provided
with periodic updates on the status of the school district accountability
regulations. The Regents approved
the regulations on an emergency basis in February 2006 and approved the
regulations for final adoption in May 2006.
2. A total of 57 audit reports were presented to the Subcommittee members for their review and comments. These reports on school districts, BOCES, and Department programs identified 487 recommendations for improvements. In almost all cases, the auditees agreed to implement the recommendations. Members encouraged staff to make the results of the audits available to others.
3.
Members were informed of the
process used by the Office of Audit Services to follow-up on the status of
recommendations 90 days after the issuance of the final audit report. This
process is designed to ensure action is taken on each of the
recommendations.
4. Information was presented on the Department’s recently initiated Fraud, Waste, and Abuse hotline. It provides an outlet for individuals to notify the Department of allegations of impropriety in USNY institutions.
5.
A KPMG partner presented
information on the results of the audit of the financial statements of the State
of
6. The Department’s Director of the Bureau of Budget Coordination described the process used to prepare the Department's Monthly Fiscal Report. He also described the process to monitor the program offices’ fiscal status and to address any problems that are identified. The Members requested that this information be shared with all members of the Board.
7. Members were provided with an overview of the Department’s oversight activities related to the 400 non-degree granting proprietary schools that serve about 100,000 students. Department staff visit each school at least once every four years and also routinely visit schools to follow up on student complaints. The Subcommittee members challenged staff to develop a risk-based approach to monitoring schools to supplement those identified by student complaints.
8. The Department’s Internal Control Officer (ICO) briefed the members on the annual certification process, the process used by offices to assess internal controls, plans to issue a revised Administrative Policy Manual, and the development of internal control training.
9. Members were provided with the opportunity to comment on the draft 2006-2008 Audit Plan. The Plan calls for audits of school districts, BOCES, charter schools, and Department operations along with reviews of financial statements and Single Audit reports.
Through these activities, the Subcommittee helped set the “tone at the top” for quality financial reporting, effective internal controls, safeguarding assets, compliance with laws and regulations, effective use of resources, and accomplishment of goals and objectives.
Attachment
III
Audit Report
Abstracts
Regents Subcommittee on
Audits
September
2006
Office
of Audit Services | ||
Audit |
Major
Finding(s) |
Recommendations/Response |
Our World Neighbor- hood Report
CH-1005-1 11th Judicial
District |
$0
adjustment The audit found the Board of Trustees
(Trustees) meeting minutes did not document adequate monitoring of the
School’s financial condition or discussions of audit findings and staff
requests to attend
training/conferences. The School’s fiscal year and the actual
number of school days provided were inconsistent among the School’s
Charter, by-laws, and the School calendar. School bank reconciliations
were not signed and dated by the preparer or the
reviewer. The audit also found the Parent Teacher
Organization (PTO) is not independent of the School in financial matters;
the School’s Chief Administrative Officer is a signer on the PTO checking
account and the PTO is using the School’s tax-exempt identification
number. The School does not have specific procedures that define the types
of expenditures that are appropriate and the documentation required for
reimbursement from the petty cash
fund. In addition, personnel files do not
contain all necessary information such as documentation of reference
checks and evidence of required
certifications. Finally, the School did not establish
adequate controls over the $2.8 million in assets that it owns. Specifically, about $200,000 of
furniture and equipment lacked School identification tags, the fixed asset
inventory did not contain sufficient identifying information, and a
physical inventory was not taken within the last
year. |
29
recommendations The report recommends the Board
officially meet to approve the budget and any budgetary transfers; monitor
the budget and establish a process to monitor budget status reports;
authorize bank accounts for School use; approve corrective action plans to
address audit findings; and establish a policy to review staff requests to
attend training conferences. In addition, the report recommends
amending the School by-laws to reflect the dates in the Charter for the
fiscal year, strengthening School bank reconciliation procedures,
separating financial operations between the PTO and the School, and
modifying the petty cash procedures to provide guidance on appropriate
expenditures and required documentation for reimburse-
ment. Furthermore, the report recommends that
personnel file documentation be strength- ened to include support for
references and appropriate certifications, and that the School establishes
policies and procedures for fixed assets and equipment
inventory. School officials agree with all but one
of the recom- mendations; they have taken action to implement the
recommendations that they agree with. In response to the recommendation
they disagree with, School officials believe they have an adequate process
in place to approve bank reconciliations. |
The Report
CA-0602-12 An audit conducted by the Office of the
Auditor General, Department of Educa- tion of The City of New York and
Approved by the State Education Depart- ment Pursuant to Education Law
Section 4410 2nd Judicial
District |
$67,696
adjustment The audit determined that the School
did not comply with some State Education Department (SED) regula- tions
and guidelines that govern fiscal operations of schools for children with
disabilities. The School both under and over-reported
student enroll- ment data; misreported personal service and fringe benefit
costs; and did not maintain adequate docu- mentation for
other-than-personal-service and admin- istration expenses, some of which
were not reim- bursable. Parking violation fines, late payment
fees to credit card companies, and corporation franchise taxes paid above
the minimum allowed amount were disallowed by the auditors as not
reimbursable. |
3
recommendations The report recommends that the School
calculate its enrollment data in accordance with SED regulations, report
accurate personal service and fringe benefit data to the appropriate cost
center, comply with SED guidelines for all reimbursable expenditures, and
maintain the required documentation for all expen-
ditures. School officials generally agree with
recommendations. The Rate Setting Unit will use the
results of the audit to establish audited tuition
rates. . |
Office
of the State Comptroller | ||
Audit |
Major
Finding(s) |
Recommendations/Response |
12th Judicial District
|
$600,101
adjustment The audit found material errors on
The report also found that VCDC
combined costs on the CFR for two of its programs and neglected to use the
CFR Manual’s prescribed methodology to calculate full-time equivalent
(FTE) enrollments. |
3 recommendations to
SED 6 recommendations to
VCDC The report recommends that SED review
the adjustments identified in the audit report and take appropriate action
to recover any overpayments; require VCDC to report program information on
the CFR separately; and formally advise VCDC to comply with the Manual’s
methodology for calculating FTE
enrollment. The report also recommends that VCDC
ensure personal service costs reported on the CFR are accurately charged
to the appropriate program, all costs are reported correctly as either
direct care or non-direct care, and all OTPS costs reported on the CFR are
eligible and adequately documented. In addition, VCDC should report
program information separately on the CFR and comply with the Manual’s
methodology for calculating FTE
enrollment. SED officials agree with all of the
recommendations. VCDC did not respond specifically to the recommendations,
but indicated disagreement with findings regarding retainer payment to its
accountants and payments to other consultants for team meetings.
The Rate Setting Unit will use the
results of the audit to establish audited tuition
rates. |
Written Support of Internal Controls
Over the State Aid Management
System Report
2006-S-32 |
$0
adjustment The audit found the Department’s
written support documenting internal con- trols over the State Aid Unit
and the State Aid Management System is adequate. These controls help
provide assurance that the financial
information for reporting support of public schools to the Office of the
State Comptroller (OSC) for use in the State’s Comprehensive Annual
Financial Report is reliable. |
0
recommendations |
Report
2006M-27 6th Judicial
District |
$0
adjustment The audit found that the Board of
Education (Board) has not established policies or procedures for the audit
of claims, nor has the Board deliberately and thoroughly audited
them. In addition, Board
members stated that they do not audit every claim because they trust the
work of District staff to ensure the accuracy and appro-priateness of
claims. An audit test of 80 claims revealed
that eight lacked evidence that goods or services were received and two
included mileage reimbursements that were paid at rates other than the
established rate set by the Board. |
1
recommendation The report recommends that the Board
enhance the District’s internal controls by establishing policies and
procedures to ensure the deliberate and thorough audit of all individual
claims. District officials agree with the
recommendation; they stated that they would appoint a part-time internal
claims auditor and prepare written internal control policies and
procedures. |
Wyandanch Union Free Report 2006M -
3 10th Judicial
District |
$0
adjustment The audit found the District did not
effectively procure its annual audit services by obtaining requests for
proposals. The District contracted with the firm they had used in the past
without seeking competitive offers from other
firms. The audit also found that the CPA’s
annual audit of the District did not meet several critical professional
stan- dards. Specifically, the CPA’s were not in compliance with standards
for consideration of fraud, risk of District management overriding
controls, under- standing internal controls, documentation of work, and
disclosure of non-compliance with law and regulations.
|
6
recommendations The report contains four
recommendations regarding the proper procurement of audit services at
least every five years. The report recommends that the District and Board
ensure they understand the scope and limitation of the annual independent
audit. Finally, the report recommends the district establish an audit
committee. District officials generally agreed
with the recom- mendations and indicated they planned to take corrective
action. |
Wyandanch Union Free Report
2006M-7 10th Judicial
District |
$0
adjustment The audit found District officials did
not adopt policies, maintain perpetual inventory records, conduct periodic
inventories, nor establish other safeguards to ensure that capital assets
were protected from loss. Auditors found that the District has possession
of less than 50 percent of computer equipment obtained through a SED
surplus computer program; they were unable to locate 74 of the 181 donated
computer-processing units, 24 donated laptops, and 81 of the 120 donated
monitors. The report also found the control
environment over employee personnel files and payroll processing is
weak. Personnel files lacked
proof of fingerprint clearances, background checks, and SED clearances to
work with children. In
addition, District personnel made recordkeeping errors that led to the
overpayment of 17 employees and the underpayment of 14 employees. Furthermore, the auditors could
not determine how a 1.5 percent employee bonus was
calculated. The District did not comply with its
own procurement policy and General Municipal Law competitive bidding
requirements. Ten contracts
totaling more that $600,000 were awarded without using a request for
proposal process, two contracts totaling $130,000 were for consultant
services that the District did not need, and the contractual service
provision for one contract totaling $68,000 was never fully
realized. The District had one person performing
the duties of accountant and treasurer. The treasurer/accountant prepared
deposits, posted entries in the accounting records, printed and signed
checks, and performed bank
reconciliations. |
21
recommendations The report recommends that the Board
establish compre- hensive capital assets policies, take immediate action
to recover the missing computers, update its payroll policies and
procedures, assign payroll duties appropriately, ensure vouchers are
audited prior to payment, provide procurement guidance, and review
payments on contracts where services were either unneeded or not provided
(to determine legal action/repayment). The report also recommends that the
District ensure that its capital assets inventory is complete and
up-to-date, contracts are clear and concise, contractual com- pliance is
monitored, and employee duties are segregated. The report also recommends the
District require that personnel files contain all required forms, create a
system to accurately track employee time records, and develop and document
criteria for the 1.5 percent employee
bonus. District officials agreed with the
recommendations and indi- cated they plan to initiate corrective
action. |
Report
2006M-45 7th Judicial
District |
$0 adjustment
The audit found that District officials
did not establish the controls and maintain the records necessary to
safeguard food inventories.
Auditors found that the District’s cafeteria manager performed
virtually all of the administrative duties asso- ciated with the cafeteria
with little or no oversight, and did not keep a perpetual inventory
system. In addition,
custodial staff had access to food inventories without managerial super-
vision. Auditors also noted
discrepancies (shortages and overages) with the District’s physical inven-
tories. |
4
recommendations The report recommends the Board and
District manage- ment establish policies and procedures to address the
acquisition, storage, and use of food inventories. The report also
recommends that the cafeteria manager establish and maintain a perpetual
inventory system; District officials improve physical security over stored
food items; and the District’s internal auditor perform periodic reviews
to identify any unusual food inventory items or
trends. District officials generally agreed
with the recom- mendations and indicated they plan to initiate corrective
action. |
Report
2006M-74 7th Judicial
District |
$0
adjustmemt The audit found that the District’s
internal controls over payroll and personal services are appropriately
designed and operating effectively. |
0
recommendations
|
Report
2006M-30 5th Judicial
District |
$0
adjustment The audit found that District personnel
are not complying with the Board procurement policy. Auditors examined 23 purchases
totaling $200,000. Support for these purchases in the form of oral or
written quotes, or requests for proposals from vendors were
nonexistent. Additionally,
auditors found no written evidence supporting a sole-source determination
for a $31,150 public works contract. The audit also found that District
officials did not ensure capital assets were protected from loss by
assigning responsibility for record maintenance to someone independent of
purchasing. The District did
not maintain adequate perpetual inventory records, conduct periodic
inventories, tag District assets, and approve capital asset transfers to
District employees. |
6
recommendations The report recommends the Board ensure
District em- ployees follow the District’s procurement policy, assign
responsibility for updating capital asset records to someone independent
of the purchasing process, and approve and note in minutes of its meeting
any transfers of capital assets to District
employees. The report also recommends that
District officials ensure that District personnel maintain adequate
capital asset/ computer equipment records, perform inventory reviews, and
identify all District property via decals, tagging, or serial
numbers. District officials generally agreed
with the recommendations and indicated they plan to initiate corrective
action. |
Report
2006M-61 6th Judicial
District |
The audit found that the District’s
internal controls over non-payroll cash disbursements were appropriately
designed and operating effectively and there was adequate segregation of
duties over cash disbursements. |
0
recommendations |
4th Judicial
District |
$0
adjustment The audit found that the Board of
Education (Board) had not adopted a written policy to protect and account
for the District’s fixed assets. The audit also found that the
District’s fixed asset inventory records for its capital assets were not
timely or accurate. Auditors
were only able to locate 70 of 77 computers that were in the District’s
inventory records. In
addition, serial numbers for 30 of the 70 computers were not recorded in
the inventory records. Lastly, the audit found that the
District does not have written guidelines for the disposition of computers
and computer equipment.
Auditors found that the District gave away an unknown number of
com- puters, however, because guidelines and supporting documentation did
not exist, they were unable to determine whether the computers should have
been discarded. |
5
recommendations The report’s recommendations focus on
the establishment and implementation of fixed asset policy and disposal
guidelines for the District’s capital assets, and requiring District
personnel to assign an identification number to all applicable capital
assets. District officials generally agreed
with the recom- endations and indicated they plan to initiate corrective
action. |
Enlarged Report
2006M-62 3rd Judicial
District |
$0
adjustment The audit found that the District has
inadequate controls over the assigned passwords used to access the
District’s computer network, and that the Board had not established
policies and procedures for the creation and administration of the users’
network passwords. Auditors
found that the District does not require users to change passwords
periodically; in fact, all users can use their initial assigned password
for the entire period of their
employment. The audit also found that the District
assigned certain users in the business office with administrative rights
for the financial management system when they had no need for full access
to the system. These rights allow them to view, modify, edit, create
financial transactions in functions, and create management
overrides. Finally, the audit found that the
District did not have a standard procedure for documenting the calculation
and supervisory approval of employees’ retirement pay- ments, and it
identified weaknesses in the segregation of duties over payroll and
authorized signatures on paychecks.
Auditors found that the District allowed the former Superintendent
to cash in 11 unused vacation days in the amount of $5,450 and determined
that the former Associate Superintendent was paid $5,010 for vacation days
that were in excess of her available leave balance. Auditors also found that the
District’s payroll clerk performed a majority of the payroll duties at the
District. |
13
recommendations The report’s recommendations focus on
establishing policies and procedures over the administration of user
accounts; restricting access to the financial management system;
strengthening controls over employee leave records, benefits, and
retirement pay- outs; and instituting additional payroll
processes. District officials generally agreed
with the recom- mendations and indicated they plan to initiate corrective
action. |
William Floyd Union Free Report
2006M-36 10th Judicial
District |
$0
adjustment The audit found that the District’s
internal control structure was inadequate to detect and prevent
fraud. Auditors identified
several control deficiencies including employment contract approvals
subsequent to service provision, unapproved changes to the
Superintendent’s contract, failure to segregate critical duties, lack of
communication between the Treasurer and the Board of Education (Board)
regarding District financial information, failure to monitor the
effectiveness of internal controls by the Board or the
Superintendent. The audit also found that the District
incurred $3.2 million in inappropriate or ques- tionable costs. Auditors found District
administrators were paid without Board approved contracts, the
Superintendent increased his own salary and obtained reimbursement for
personal costs, the former business manager transferred the ownership of
life insurance policies from the District to six District officials, and
various District officials obtained meals and lodging costs in excess of
federal per diem rates. Furthermore, the audit found the
District had ineffective contract procurement and claims processing
policies, and procedures that did not detect improper payments or
overpayments for District procurements. Auditors found that the Board
contracted with the former Assistant Superintendent for Business
immediately after his retirement and even though he was ineligible to
perform the services the District paid him approx- imately $834,920 over a
six-year period based on an unspecific and unsigned contract. In addition, auditors found the
District paid seven providers for services amounting to $940,451 without
Requests for Proposals for the services, nor did it negotiate written
contracts with six of the seven providers, and the District paid for
services that were not competitively
bid. Finally, the audit identified
deficiencies in the District’s controls over payroll and capital
assets. Payroll deficiencies
allowed the District to make unautho- rized payments of $159,197 to its
former Treasurer and allowed the Superintendent to increase nine admin-
istrators’ salaries, which totaled approximately $40,182 without Board
approval. Capital asset
inventories were not properly accounted for, cost records were not
up-to-date, and District policy does not provide guidance on inventory
updates that result from the disposal of assets or a change in an asset’s
location. |
35
recommendations The report’s recommendations focus on
strengthening internal controls; providing public accountability for
decisions involving employment contracts and other District business; increasing Board oversight to
lessen the likelihood for future theft, misuse, and waste of District
funds; strengthening procurement, claims processing, and payroll
practices; and improving capital asset inventory policies, procedures, and
record keeping processes. District officials generally disagreed
with the audit, which they believed focused unfairly on past problems, and
contend that they had already implemented most of the report’s
recommendations. |