Meeting of the Board of Regents | November 2008
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THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234 |
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Subcommittee on Audits
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Theresa E. Savo
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Board of Regents Oversight – Financial Accountability
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November 5, 2008
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Goal 5
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Executive Summary
Issues for Discussion
Four items are presented for discussion with the Members of the Subcommittee on Audits including:
- Wyandanch Union Free School District – Final Report on Actions
- Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment II)
- Proposed Policy Change (Attachment V)
- Department’s Internal Control Process and Annual Certification
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
- WyandanchUnion Free School District – Staff will provide a report on actions taken by the Department in response to fiscal conditions at the Wyandanch Union Free School District.
2. Completed Audits
The Subcommittee is being presented with 26 audits this month. The audits have been reviewed by the Department’s Internal Audit Workgroup. Their report is attached. (Attachment II)
Audits are provided as follows:
Office of Audit Services
Regional Early Childhood Direction Center of Monroe #1 BOCES
Office of the State Comptroller
Brighton Central School District
Cooperstown Central School District
Dobbs Ferry Union Free School District
Employee Benefit Accrued Liability Reserve Funds (Bay Shore UFSD, Bellmore-
Merrick CHSD, Brentwood UFSD, Connetquot CSD, Copiague UFSD, Cuba-
Rushford CSD, Ellicottville CSD, Farmingdale UFSD, Garden City UFSD,
Haverstraw CSD, Hewlett-Woodmere UFSD, Horseheads CSD, Levittown
UFSD, North Collins CSD, North Merrick UFSD, Queensbury UFSD, South
Orangetown CSD, Westhampton Beach UFSD, and Whitesville CSD)
Hawthorne Cedar Knolls Union Free School District
Highland Central School District
Honeoye Falls-Lima Central School District
Long Lake Central School District
Mid-Hudson Regional Information Center (Ulster BOCES)
Moriah Central School District
Mount Vernon City School District
Newburgh Enlarged City School District
Niagara Falls City School District
North Syracuse Central School District
Oxford Academy and Central School District
Oysterponds Union Free School District
Schenectady City School District
SED - School District Medicaid Reimbursement (Amsterdam City SD
(Greater), Johnstown City SD (Greater), Lansingburgh CSD, Peru CSD,
Plattsburgh City SD, Salmon River CSD, Saranac CSD, and
Shenendehowa CSD)
SED – Audit of the Tuition Reimbursement Account for the Two Fiscal
Years Ended March 31, 2006 and March 31, 2007
Tupper Lake Central School District
Vestal Central School District – 2 reports
Washington-Saratoga-Warren-Hamilton-Essex BOCES
West Genesee Central School District
Williamsville Central School District
- Proposed Policy Change – The results of the many audits of school districts conducted by the Office of the State Comptroller and others have been summarized and tracked for more than a year. Department staff will describe a proposed policy change that, if adopted, would lead to enhanced accountability in school districts. (Attachment V)
- Department’s Internal Control Process and Annual Certification – Staff will brief the Subcommittee members on the Department’s process to help ensure key risks are identified and adequate internal controls are in place. Staff will also brief the Subcommittee members on the requirement to annually certify to the Division of the Budget that the Department has complied with certain provisions related to internal controls.
Recommendation
For item one (Wyandanch Final Report), item two (Completed Audits), and item four (Internal Control Process and Annual Certification), no further action is recommended. For item three (Proposed Policy Change), the advice and guidance of the Members of the Subcommittee is sought.
Timetable for Implementation
N/A
The following materials are attached:
- Roadmap
- Minutes of the October Meeting (Attachment I)
- Review of Audits Presented – Department’s Internal Audit Workgroup (Attachment II)
- Summary of Audit Findings (Attachment III)
- Audit Report Abstracts (Attachment IV)
- Proposed Policy Change (Attachment V)
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REGENTS SUBCOMMITTEE ON AUDITS
MEETING ROADMAP
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Opening Remarks |
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Chair |
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Review Agenda/Minutes (Attachment I) |
Approval |
Conway |
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Wyandanch – Status Report |
Information |
Szuberla |
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Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment II), Summary of Audit Findings (Attachment III), and Audit Report Abstracts (Attachment IV) |
Questions answered |
OSC and Department Audit Staff |
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Proposed Policy Change (Attachment V) |
Input |
Conway |
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Internal Control Process and Annual Certification |
Information |
Rivers |
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Your Subcommittee on Audits held its scheduled meeting on October 20, 2008.
Subcommittee Members in Attendance:
Geraldine D. Chapey, Chair
Regent Milton L. Cofield
Regent Joseph Bowman Jr.
Other Members of the Board of Regents in Attendance:
Regent Roger B. Tilles
Discussion Items
- Regent Chapey welcomed all attendees and recognized the increased importance of audits and their potential as a lever for reform given the current fiscal situation.
- Charles Szuberla, Coordinator of School Operations and Management Services, gave an interim status report on the actions taken to assist Wyandanch with their fiscal problems. Department staff met with District officials stressing the necessity of balancing the budget. The District has a $1.5 million shortfall in the current year’s budget. The District has identified more than $1.4 million in cuts and prioritized them. They are making adjustments to non-personnel and non-instructional expenses, as well as instructional and academic expenses. The District has set its tax rate so further budget reductions must be made to address the remaining deficit. Monthly status reports are being received. Options to enhance revenue are being explored, such as, child nutrition which has been operating at a loss, additional training for Board members, assistance with grants management, and the propriety of former employees receiving health benefits. The District is concerned about their credit rating as they attempt to acquire financing. The Department supports deficit financing to cover the $2.5 million deficit from last year and Title I money owed. It is essential they reduce spending, balance the budget, and get deficit financing. The summary letter has not yet gone to the District.
- The Director of Office of Audit Services (OAS) presented the agenda for the meeting which included the report on the 15 audits, Office of Audit Services Two-Year Audit Plan 2008-2010, and an audit finding trend - conflict of interest.
He also outlined the seven audits identified by the Internal Audit Workgroup for follow-up and their specific findings.
- Elmira City School District – Unauthorized and inappropriate payments for unused leave were made to a former assistant superintendent. Six employees who transferred to the Greater Southern Tier BOCES were paid for unused and accrued vacation time, and allowed to carry over vacation days from one fiscal year to the next without contract provisions. This necessitated a BOCES contract change resulting in a $56,000 increase. The superintendent approved this change without formal board approval.
- Highland Falls-Fort Montgomery Central School District – The District did not obtain fingerprint-supported background checks for 27 of 58 employees and 4 contractors who were in direct contact with students.
- Roosevelt Union Free School District – The District received a $4 million cash advance after submitting their five-year plan. There are some outstanding issues with the plan. Based on the $766,000 school lunch deficit, staff from the Department’s Child Nutrition office made an unannounced visit and will provide recommendations to improve the program.
- Unadilla Valley Central School District, Union-Endicott Central School District, and Elmira City School District appointed their respective BOCES as claims auditor. Each BOCES provides significant services to the districts.
- Oswego County BOCES – Policies and procedures have not been established to ensure adequate segregation of duties and oversight of handling and recording of cash receipts.
- SED – Higher Education Opportunity Program (HEOP) – The primary purpose of the audit was to determine whether HEOP funds were used for the prescribed purpose at the four schools selected for the audit. The audit found all four schools appeared to be in compliance. One school, Long Island University-Brooklyn, had an unresolved discrepancy between the amount of total expenditures reported to the Department at year-end and the amount shown in the school’s records. This could be a coding problem caused by a new accounting package.
- SED – Security Over Regents Examinations Follow-Up Report – The original report was issued in June 2007. The follow-up report indicated that the Department had implemented all recommendations.
- Completed audits presented this month:
Office of the State Comptroller
A Starting Place
Elmira City School District
Hadley-Luzerne Central School District
Highland Falls-Fort Montgomery Central School District
Mattituck-Cutchogue Union Free School District
North Tonawanda City School District
Oswego County BOCES
Port Chester-Rye Union Free School District
Roosevelt Union Free School District
Sag Harbor Union Free School District
SED – Higher Education Opportunity Program
SED – Security Over Regents Examinations Follow-up Report
Unadilla Valley Central School District
Union-Endicott Central School District
Union Free School District of the Tarrytowns
- Continuing the monthly presentation on audit trends, OAS discussed some audit issues encountered with conflict of interest. This finding has been recorded in 18 of the 407 audits completed by the Office of the State Comptroller. Conflict of interest transactions occur when an officer or employee is on both sides of a transaction. It exists when some financial or other material benefit comes to the employee from a business or professional transaction with the district or BOCES. To enhance compliance with General Municipal Law, training and outreach will be expanded for school staff and board members.
- Regent Chapey moved to accept the minutes of the September meeting and Regent Cofield seconded the motion.
Attachment II
Regents Subcommittee on Audits
November 2008
Review of Audits Presented
Department’s Internal Audit Workgroup
Newly Presented Audits
We reviewed 26 audits that are being presented to the Subcommittee this month. The audits were of 20 school districts, 3 BOCES, 1 examined reserve fund balances at 19 school districts, 1 examined Medicaid Reimbursements at 5 school districts, and 1 financial audit of a Department administered fund. The audits were issued by the Office of the State Comptroller (OSC) and the Office of Audit Services. The findings were in the areas of information technology, claims processing, procurement, cash, financial reporting, payroll, segregation of duties, conflict of interest, fingerprinting, and extraclassroom activity fund.
The Department has issued letters to the auditees, reminding them of the requirement to submit corrective action plans to the Department and OSC within 90 days of their receipt of the audit report.
The Department’s Internal Audit Workgroup identified six school district audits, two BOCES audits, and one Department audit for further review and follow-up.
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Employee Benefit Accrued Liability Reserve Funds
(Bay Shore, Bellmore-Merrick, Brentwood, Connetquot, Copiague, Cuba-Rushford, Ellicottville, Farmingdale, Garden City, Haverstraw, Hewlett-Woodmere, Horseheads, Levittown, North Collins, North Merrick, Queensbury, South Orangetown, Westhampton Beach, and Whitesville)
Summary of Audit
Reserve funds are created under various laws which determine how the reserves can be established, funded, expended or discontinued. School districts can establish an Employee Benefit Accrued Liability Reserve (EBALR) fund under Section 6-p of General Municipal Law (GML) and use EBALR monies to pay employees for accrued leave time due to them when they leave district employment. Interest earned on money in the EBALR must become part of the reserve fund.
School district officials have reserved far more money than necessary in their EBALR funds. Two-hundred and fifty-one school districts across the State could have as much as $407 million more in these reserve funds than they need to pay for compensated absences liabilities and have added more than $112 million of surplus to their EBALR funds in the 2006-2007 fiscal year alone. Excess EBALR funds represent money that could be redirected to other purposes to benefit taxpayers. Currently, there are legal restrictions on how the districts can use this money and require legislative approval to remove these funds from the reserves and use them for other purposes. Other problems found include: districts not properly calculating their liability for compensated absences, not using the fund to actually pay for compensated absences, and not depositing the interest earned on the EBALR funds into the reserve, as required. Finally, school districts have increased taxes over the past few years even as they moved far more money than needed into their EBALR fund. From 2002-2003 to 2006-2007, the 19 school districts we reviewed in detail collectively increased their EBALR reserves by about $100 million (136 percent); during the same period, property taxes in these districts increased by 30 percent, or by about $243 million.
Follow-up Action
Department staff will coordinate with the New York State Association of School Business Officials, the New York State Council of School Superintendents, and the New York State School Boards Association in providing guidance to the districts.
- HighlandCentral School District
Summary of Audit
The payroll function was not segregated, and a lack of sufficient oversight or other compensating controls allowed numerous overpayments, and some underpayments, to occur. The District overpaid four former employees a total of $9,572 for unused leave. Thirteen of 19 employees tested received inaccurate payroll payments for a four-week period. The board of education also failed to meet the training requirements for board members on financial oversight responsibilities. Five of nine board members serving during the audit period were required to have training on their financial oversight, accountability, and fiduciary responsibilities, but chose not to receive the training. Two members indicated the training offered was not convenient, and did not believe it was necessary for them to attend.
Follow-up Action
Counsel’s office is reviewing this audit to determine appropriate action to take.
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Moriah
Central School District
Summary of Audit
A lack of oversight by District officials resulted in a significant decline in the District’s general fund balance from $183,006 as of June 30, 2003 to $39,849 as of June 30, 2007. A deficit fund balance in the cafeteria fund grew from $3,511 at June 30, 2003 to $47,897 at June 30, 2007. Board of education members did not receive adequate budgetary status reports to allow them to monitor revenue projections and appropriations. In recent years, the District has had to issue revenue anticipation notes (RANs) on a recurring basis in order to maintain sufficient cash flow for operating purposes. The amount of RANs issued has increased from $500,000 in 2001-2002 to $1.5 million in 2007-2008 with no budgetary appropriations made available to redeem the notes.
Follow-up Action
Upon Moriah’s submission of the corrective action plan for this audit, Office of Audit Services’ staff will review to ensure all findings have been addressed.
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Niagara Falls
City
School District
Summary of Audit
The District did not have established written policies and procedures for the processing and disbursement of payroll and related benefits, or for monitoring to ensure compliance with applicable employment agreements. The District overpaid 272 salaried employees in excess of $500,000 in the 2005-2006 school year. In addition, 10 employees received salaries totaling $964,099, as well as other employee benefits, none of which were authorized by a written agreement or board policy. The superintendent did not record the use of any vacation time until the 2005-2006 school year, and each year the superintendent requested a lump sum payment for unused vacation days as provided in his employment contract. Due to his failure to accurately account for his leave time, the District inappropriately paid the superintendent over $10,800 for 21 vacation days during the 2004-2005 year. Since there is evidence that the superintendent has been taking vacations every year, there is a strong possibility that the District has inappropriately made lump sum payments to him for a number of years.
The District has had difficulty obtaining supporting documentation from employees, which has resulted in the District paying credit card bills late and incurring late fees totaling $5,038 over a three-year period. There were certain instances when officials used their District credit cards for purposes strictly prohibited by policy, such as, a designated cardholder allowed another individual to use his or her District credit card. In addition, the superintendent used his District credit card to pay for travel expenses totaling over $2,200 which were related to personal consulting work and no evidence was found that the superintendent reimbursed the District for these expenses.
Follow-up Action
Counsel’s office is reviewing this audit to determine appropriate action to take.
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Computer Power Save (Mount Vernon, Newburgh, North Syracuse, Schenectady, Williamsville)
The school districts have not enacted computer power management policies and
procedures. By enabling power management settings, such as, power save modes, changing and/or enabling power management policies and practices, and by establishing directives instructing computer users to power down computers during periods of inactivity, the audited school districts could save as much as $240,000 annually. Further, these school districts can collectively save approximately 1.8 million kilowatt-hours, and reduce carbon dioxide, nitrous oxide and sulfur dioxide emissions by more than 1.5 million pounds annually. For perspective, there are 736 schools across New York State which in 2004 had about 840,000 computers. The five audited school districts had 15,679 computers. These districts could save about $212,300 annually ($13.54 per computer) by enabling power save settings and/or shutting down during periods of inactivity. If similar conditions exist in school districts statewide, districts could collectively save over $11.3 million annually or reduce annual energy consumption by over 84 million kWh, and reduce greenhouse gas emissions by over 69.7 million pounds, which is the equivalent of removing 5,790 cars from the road.
Follow-up Action
Upon the districts’ submission of the corrective action plan for this audit, Office of Audit Services’ staff will review to ensure all findings have been addressed.
- Hawthorne Cedar Knolls Union Free School District, Highland Central School District (also mentioned above), Oxford Academy and Central School District, and the Vestal Central School District-Internal Controls Over Selected Financial Activities and Computer Data
Summary of Audits
Oxford and Vestal appointed their respective BOCES as claims auditor. Each BOCES provides significant services to the districts. Hawthorne Cedar Knolls and Highland have weaknesses in their claims auditing function, such as, claims auditor not following policies and payments were made before claims were audited.
Follow-up Action
A Department workgroup has been convened to study the OSC audit findings related to central business office functions. In addition, a policy change is being proposed by the Internal Audit Workgroup to require mandatory training for claims auditors.
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Regional Early Childhood Direction Center (RECDC) of Monroe #1 BOCES
Summary of Audit
The RECDC claimed reimbursement for expenditures that were not adequately documented, and a few that were unallowable or inappropriate. In addition, RECDC did not meet other contract requirements, such as, employing a full-time director, providing in-kind support by Monroe #1, and submitting asset inventory. It also overstated its reported data to VESID. There were internal control weaknesses related to accounts payable processing and claims auditing.
Follow-up Action
Upon Monroe #1’s submission of the corrective action plan for this audit, Office of Audit Services’ (OAS) staff will review to ensure all findings have been addressed. Staff from the Office of Education – P-16 and OAS will also follow-up with the district superintendent on these issues.
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Washington-Saratoga-Warren-Hamilton-Essex BOCES
Summary of Audit
The BOCES expended over $88,000 for meals and refreshments that did not always have prior approval or adequate supporting documentation. The board of education also placed two independent contractors on the payroll and incorrectly enrolled them in the Employees’ Retirement System.
Follow-up Action
Staff from the Office of Education - P-16 will meet with the district superintendent to discuss the issues raised in this audit.
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SED Tuition Reimbursement Account
Summary of Audit
This was a financial statement audit of the Tuition Reimbursement Account (TRA). The TRA's statement of revenues, expenditures, and changes in fund balance for the two fiscal years ended March 31, 2006 and March 31, 2007 and the related balance sheets (statements) were audited and, in the opinion of the auditors, the statements present fairly, in all material respects, the TRA’s financial position as of March 31, 2006 and March 31, 2007.
The report on Department compliance found the Department is currently not in compliance with the interpretation of law by OSC, as it pertains to certain TRA assessment provisions. However, the Department has taken action to revise the Commissioner's Rules and Regulations as well as to obtain legislative revision.
Follow-up Action
No action necessary.
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Procurement |
Claims Processing |
Payroll |
Cash |
Financial Reporting |
Information Technology |
Extraclassroom Activity Fund |
Segregation of Duties |
Conflict of Interest |
Fingerprinting |
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* Regional Early Childhood Direction Center of Monroe #1 BOCES (footnote 3) |
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* Amsterdam City School District (Greater) (footnote 1) |
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Bay Shore Union Free School District |
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Bellmore-Merrick Central High School District |
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Brentwood Union Free School District |
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Brighton Central School District |
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Connetquot Central School District |
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Cooperstown Central School District |
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Copiague Union Free School District |
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Cuba-Rushford Central School District |
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Dobbs Ferry Union Free School District |
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Ellicottville Central School District |
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Farmingdale Union Free School District |
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Garden City Union Free School District |
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Haverstraw Central School District |
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Hawthorne Cedar Knolls Union Free School District |
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Hewlett-Woodmere Union Free School District |
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* Highland Central School District (footnote 5) |
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Honeoye Falls-Lima Central School District |
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Horseheads Central School District |
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* Johnstown City School District (Greater) (footnote 1) |
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* Lansingburgh Central School District (footnote 1) |
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Levittown Union Free School District |
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Long Lake Central School District |
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Mid-Hudson Regional Information Center (Ulster BOCES) |
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Moriah Central School District |
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* Mount Vernon City School District (footnote 4) |
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* Newburgh Enlarged City School District (footnote 4) |
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Niagara Falls City School District |
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North Collins Central School District |
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North Merrick Union Free School District |
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* North Syracuse Central School District (footnote 4) |
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Oxford Academy and Central School District |
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Oysterponds Union Free School District |
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* Peru Central School District (footnote 1) |
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* Plattsburgh City School District (footnote 1) |
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Queensbury Union Free School District |
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* Salmon River Central School District (footnote 1) |
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* Saranac Central School District (footnote 1) |
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* Schenectady City School District (footnote 4) |
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* Shenendehowa Central School District (footnote 1) |
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* SED-Audit of the Tuition Reimbursement Account(footnote 6) |
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South Orangetown Central School District |
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Tupper Lake Central School District |
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* Vestal Central School District – Computer Equipment: Energy Conservation and Cost Savings (footnote 2) |
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Vestal Central School District – Internal Controls Over Selected Financial Activities and Computer Data |
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Washington-Saratoga-Warren-Hamilton-Essex BOCES |
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West Genesee Central School District |
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Westhampton Beach Union Free School District |
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Whitesville Central School District |
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* Williamsville Central School District (footnote 4) |
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School District Medicaid Reimbursement |
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Environmental Impact, Electricity Cost Savings, |
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Grant Inventory, Contract Performance Measures |
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Policy Guidance, Power Management, Environmental Impact |
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Required Training for Board Members |
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The Tuition Reimbursement Account |
Summary of Current and Prior Audit Findings
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May 2007 - April 2008 |
May 2008 |
June 2008 |
September 2008 |
October 2008 |
November 2008 |
Running Total |
|
Procurement |
97 |
9 |
2 |
35 |
6 |
6 |
155 |
|
Capital Assets |
18 |
0 |
0 |
1 |
0 |
0 |
19 |
|
Claims Processing |
108 |
9 |
3 |
16 |
3 |
7 |
146 |
|
Payroll |
107 |
13 |
2 |
24 |
5 |
8 |
159 |
|
Cash |
80 |
13 |
3 |
21 |
4 |
4 |
125 |
|
Financial Reporting |
64 |
5 |
1 |
15 |
3 |
22 |
110 |
|
Information Technology |
100 |
8 |
1 |
25 |
6 |
11 |
151 |
|
Capital Construction |
5 |
0 |
0 |
0 |
0 |
0 |
5 |
|
Extraclassroom Activity Fund |
7 |
0 |
0 |
6 |
1 |
1 |
15 |
|
Segregation of Duties |
47 |
4 |
3 |
6 |
2 |
2 |
64 |
|
Budgeting |
9 |
1 |
6 |
1 |
1 |
0 |
18 |
|
Conflict of Interest |
10 |
2 |
0 |
4 |
1 |
1 |
18 |
|
Fingerprinting |
0 |
5 |
1 |
0 |
1 |
1 |
8 |
|
Other |
7 |
2 |
5 |
19 |
4 |
17 |
54 |
|
Total |
659 |
71 |
27 |
173 |
37 |
80 |
1,047 |
Definitions of Categories
Procurement – includes findings related to lack of a contract, failure to competitively bid, failure to use purchase orders, lack of segregation of duties, no approval of the purchase and a lack of documentation.
Capital Assets – includes failure to have a manager responsible, lack of policy, and inappropriate disposal.
Claims Processing – includes claims being paid without adequate documentation, failure to audit the claim, an untrained claims auditor, and a claims auditor that lacks independence.
Payroll – includes a lack of segregation of duties in the payroll process, no policy and procedures and inappropriate payments to district administrators including leave accruals and health benefits, improper classification of employees, insufficient policies and procedures for the employee retirement system, improper contractual benefit payments, and improper longevity payments to the former superintendent.
Cash – includes poor control of cash, failure to prepare bank reconciliations, and weaknesses in the treasurer’s duties.
Financial Reporting – includes inaccurate accounting statements, such as, an overstated fund balance, fund balance exceeding the legal limit, general fund transfers without voter approval, and improper use of accrued liability reserve funds.
Information Technology – includes lack of a disaster recovery plan, failure to back up information, inappropriate or undocumented user rights, inappropriate or missing password protection, and no policy and procedures.
Capital Construction – includes a lack of detailed accounting records related to a capital project, undocumented expenses, inappropriate and unapproved change orders.
Extraclassroom Activity Fund – includes poor accounting over funds and no documentation of expenses.
Segregation of Duties – includes weakness in control caused by individuals having responsibility for incompatible functions.
Budgeting – includes budget reviews required for school districts that have received approval for deficit financing, poor revenue projections and use of fund balance.
Conflict of Interest – includes personal conflicts of board members, district officials, and district employees where they have an interest in a contract, where they have the power, or may appoint someone who has the power to negotiate, authorize, approve, prepare, and make payment or audit bills or claims of the contract.
Fingerprinting – includes failure to fully comply with fingerprinting requirements.
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The RECDC claimed reimbursement for expenditures that were not adequately documented, and a few that were unallowable or inappropriate. It did not meet the contract requirements for employment of a full-time director. It reported inaccurate performance data to VESID. The BOCES did not provide the in-kind support as stated in the contract. The audit also found internal control weaknesses in the BOCES’s accounts payable processes and claims auditing.
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The report's recommendations focused primarily on strengthening the policies and procedures regarding contract expenditures, other contract requirements, contract performance measures, and internal controls.
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The District followed the provisions of General Municipal Law with regard to solicitation of competitive bids for purchase and public works contracts.
The board has not adopted a policy that appropriately addresses the procurement of professional services. The District’s current policy makes no reference to procurement of professional service providers. Further, the District has not prepared an RFP for legal services worth $123,000.
It was also determined that the District did not obtain a written agreement with its legal service provider.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding competitive bidding and professional services.
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The payroll clerk has complete control over the payroll process. The payroll clerk, the accounts payable clerk, and the business manager all have full access rights to payroll functions in the financial software. The business manager also has full user access rights to all functions within the general ledger and budgeting software.
Additionally, procedures have not been designed to limit access to financial data, and user access rights were not properly limited. Payroll software was also not properly password protected, and there was no disaster recovery plan in place to ensure that equipment and data were secure.
Finally, procedures were not implemented to ensure that background checks were performed for independent contractors who have direct contact with students. Specifically, background checks were not performed on 14 independent contractors. Overall, worker classification process controls were weak.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding segregation of duties, computerized data and assets, criminal background checks, and the classification of employees.
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District vendor payments (totaling $312,355) to vendors during the period of July 1, 2006 to June 30, 2007 were examined. There were no material deficiencies in the District’s compliance with General Municipal Law. |
There were no recommendations. |
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School district officials have reserved far more money than necessary in their Employee Benefit Accrued Liability Reserve (EBALR) funds. Two-hundred and fifty-one school districts across the State could have as much as $407 million more in these reserve funds than they need to pay for compensated absences liabilities. These 251 school districts added more than $112 million of surplus to their EBALR funds in the 2006-2007 fiscal year.
There are currently legal restrictions on how the districts can use this money. The districts require legislative approval to remove these funds from the reserves and use them for other purposes. It is recommended that this one-time revenue should be used to provide a clear benefit to taxpayers by mitigating the impact of potentially lower State Aid payment, providing property tax relief, or paying one-time expenses.
There were also problems with how districts managed their EBALR monies, including not properly calculating their liability for compensated absences, not using the fund to actually pay for compensated absences and not depositing the interest earned on the EBALR funds into the reserve, as required.
School districts have increased taxes over the past few years even as they moved far more money than needed into the EBALR fund. The 19 school districts reviewed in detail collectively increased their EBALR reserves by about $100 million (136 percent); during the same period property taxes increased by about 30 percent, or by $243 million.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding the Employee Benefit Accrued Liability Reserve (EBALR) funds. Recommendations were made to both State policymakers and school district officials.
Recommendations include possible enactment of State legislation that would require districts to remove excess funds from EBALR and use it to lower State Aid payments, or provide property tax relief. Additionally, it was recommended that State legislation establish Other Post Employee Benefit (OPEB) trusts to provide a mechanism for school districts to fund OPEB costs.
Recommendations made to district officials suggested that board and district officials should deposit interest income related to EBALR funds in the districts’ EBALR, and instead of depositing year end surplus in an EBALR, officials should determine how it can be used more productively to pay off debt or other expenses. Additionally, it was recommended that officials should determine the portion of their GASB Statement 16 liability that pertains to compensated absences and be sure that they accumulate funds for only compensated absences in an EBALR. Further, officials should pay compensated leave benefits to employees who are separating from the district from the districts’ EBALR, and not from operating funds. The board officials should also transfer funds in excess of the amount necessary to satisfy fund liabilities to other reserves.
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District officials have not developed clear and comprehensive policies and procedures for the procurement of goods and services that are not subject to competitive bidding or for the safeguard of computer data. The claims auditor did not always follow policies.
District officials also did not obtain written or verbal quotes prior to making 368 purchases between $500 and $10,000 at a cost of $1,010,939.
There were $273,173 in payments made to vendors before the claims auditor had audited claims as required.
Finally, proper computer access controls were not established. The treasurer and secretary both had access to the business and the payroll applications which creates a lack of segregation of duties. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding procurement, claims processing, and computer access rights.
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The District’s payroll function was not properly segregated and there was a lack of sufficient oversight and other compensating controls. As a result, the District overpaid four former District employees a total of $9,572 for unused leave. Thirteen out of 19 employees tested for a four-week period received inaccurate payroll payments.
District officials did not previously have sufficient internal controls over purchasing, but once this was brought to their attention, the District adopted a purchasing policy that corrected the problem.
The claims auditor also did not properly certify or sign claims warrants prior to payment. Of 25 claims tested (totaling $282,000), 7 (totaling $22,000) were insufficiently documented or not audited before payment.
The board has also failed to meet the requirements of the Department regarding training requirements for board members on their financial oversight responsibilities. Five board members who were required to obtain such training did not do so.
Finally, District officials did not properly restrict users’ access to financial data, develop a formal disaster recovery plan, or ensure that backup data was adequately safeguarded.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding payroll processing, purchasing and claims processing, required training for board members, and information technology.
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Adequate internal controls over the treasurer’s operations were not established. The treasurer’s duties are incompatible when performed by one individual because they allow the treasurer to initiate, authorize, and then conceal inappropriate transactions.
District officials also have not established adequate internal control policies and procedures to monitor computer activity and safeguard the District’s financial computer data and systems. District computers did not initiate a session lock after a period of inactivity. Computer users are also able to install software on District computers without authorization or approval. There is no formal disaster recovery plan.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding segregation of duties, and information technology.
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The District did not have adequate policies and procedures for acceptable use of information technology, passwords, system monitoring, data backup, and disaster recovery. There were also weaknesses in the design of internal controls over the financial software, as well as physical access to network components.
The District’s limited information technology policies have not been updated since October 1996 and do not provide adequate controls. There were also no established policies and procedures for creating and administering user passwords. There were significant weaknesses in password security.
Further, the District business manager has full administrative rights to the financial software despite being involved in multiple aspects of the District’s financial transactions.
The District’s IT equipment was found in an area that is accessible to staff and students. There is also no data backup or disaster recovery plan in place. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding information technology.
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All end-users in the MHRIC network have local administration rights on their workstations which could allow for the installation of unauthorized software. Further, board policy does not require users to obtain authorization before software is installed on the computers. Passwords are not strong or complex, and they are not frequently changed. Further, when tested, a generic user account on a server was guessed in one try.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding computer data and assets.
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There was a lack of oversight by District officials, which resulted in a significant decline in the District’s general fund balance from $183,006 as of June 30, 2003 to $39,849 as of June 30, 2007. A deficit fund balance in the cafeteria fund grew from $3,511 at June 30, 2003 to $47,897 at June 30, 2007. Further, the amount of Revenue Anticipation Notes issued had increased from $500,000 in 2001-2002 to $1.5 million in 2007-2008 with no budgetary appropriations made available to redeem the notes.
The board did not adequately safeguard the District’s computerized data and assets by establishing and implementing appropriate policies and procedures related to access controls, physical security, and disaster recovery.
The District also did not have adequate written policies and procedures providing proper guidance to the classification of professional service providers as either employees or independent contractors. The board also had not adopted a standard work day for bus drivers and as a result, service days for bus drivers were inaccurately reported.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding financial condition, information technology, and the employee retirement system.
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The District can save up to $12,000 annually by implementing energy conservation policies on District computers, such as, powering down during periods of inactivity, and enabling power save settings.
The District will not only save money by conserving energy, but it will also reduce greenhouse gas emissions of 78,000 pounds per year. |
The District was provided an opportunity to respond, and chose not to do so.
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The District can save approximately $47,000 annually by initiating a District energy conservation policy governing computer usage to require users to power down computers during all periods of inactivity (overnight) and to enable power save settings on all computers.
By implementing the recommendations, the District will not only save money, but it will also reduce greenhouse gas emissions by 352,000 pounds each school year.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding policy guidance, power management and environmental impact.
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The previous findings identified by external auditors were not addressed in a timely manner. Operations were also not sufficiently monitored to ensure compliance with District policies and assets were not properly safeguarded. Further, the board did not approve written employment contracts for certain District employees, and for other employees it approved contracts with vague provisions.
The District overpaid 272 salaried employees in excess of $500,000 in the 2005-2006 school year. There were also ten employees who received salaries totaling $964,099, as well as other employee benefits, none of which were authorized.
The superintendent did not record the use of any vacation time until 2005-2006, and that year the superintendent requested a lump sum payment for unused vacation days as provided in his employment contract. As a result, the District inappropriately paid the superintendent over $10,800 for 21 vacation days during the 2004-2005 year.
The District did not competitively bid 24 purchases from 7 vendors totaling $195,000. Documentation was not provided that written price quotations were obtained for 28 or 29 purchases totaling $186,000. Purchase orders for 76 of 129 tested expenditures ($1 million), were prepared after the goods or services were ordered.
The board has not provided the claims auditor with clear guidelines or written procedures. Furthermore, he was not familiar with all of the District’s policies relevant to his duties as claims auditor. There were systemic deficiencies with 55 paid claims (totaling $514,160).
Credit card purchases exceeding $630,000 were reviewed, and it was determined that the District had difficulty obtaining supporting documentation from employees which resulted in late fees totaling $5,038 over a three-year period. There were 26 instances where a designated card holder allowed another individual to use his/her District credit card. The superintendent also used his District credit card to pay for travel expenses totaling over $2,200 related to personal consulting work.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding control environment, payroll and payments for unused leave, procurement, claims processing, and credit card usage.
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It is estimated that by following the report's recommendations for energy conservation by powering down computers during periods of inactivity and enabling power save settings, the District will save $88,500 annually. The District's current energy conservation policy is deficient because the District computers are being left on during the night and on weekends. The District will not only save money if they correct this, but they will also decrease contributions of greenhouse gas emissions by 522,000 pounds per year.
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The report's recommendations focused primarily on strengthening the policies and procedures regarding policy guidance and power management.
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The District did not appoint a claims auditor in accordance with New York State Education Department (Department) regulations. Instead, the board appointed the Delaware BOCES to act as claims auditor, which is a direct violation of Department regulations. The segregation of duties over cash disbursements were also improper.
The treasurer’s duties were not properly segregated and there was no supervision or control over the use of his/her facsimile signature. Further, passwords were not complex enough to prevent potential unauthorized usage of District computers. A disaster recovery plan was also not in place, which is important because the school is located on a flood plain, and there is a risk that a natural disaster could occur and destroy equipment and/or important data.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding claims auditing, cash disbursements and information technology.
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The board inappropriately appointed one of its members to act as assistant treasurer, as restricted by Education Law. The treasurer’s duties also were not properly segregated.
Internal controls over information technology were also not properly established. There is also no formal disaster recovery program. Audit logs were also not reviewed by District officials.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding the treasurer’s operations and information technology.
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The District can save at least $29,200 annually by further educating and enforcing the existing District energy conservation policy. The District has already adopted a policy directing users to shutdown computers at the end of the day, however, the policy does not address enabling power save settings. Users are also not following the current policy and 13 percent (523 computers) were left on over a weeknight when they should have been powered off according to policy.
If the District chooses to follow the recommendations regarding energy conservation, they will not only save money, but it will also reduce greenhouse gas emissions by 141,000 pounds each school year.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding policy guidance, power management and environmental impact.
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The New York State Education Department and the Department of Health jointly established the School Supportive Health Services Program (SSHSP) to help districts obtain Medicaid reimbursements for the diagnostic and health support services that they provide to eligible students who have an Individual Education Program (IEP). Districts also may claim Medicaid Reimbursement for Targeted Case Management (TCM) reviews and ongoing service coordination.
In 2006, the State Comptroller issued a report on school district Medicaid reimbursement which found that school districts did not claim all the Medicaid reimbursements to which they were entitled. The previous report estimated that school districts in New York State could have collectively received over $70 million more in revenue over a two-year period.
The follow-up report conducted was to determine if the issues identified in the 2006 report had been corrected and if school districts were collecting the appropriate amount of Medicaid reimbursement to which they were entitled.
The eight districts examined failed to claim at least $3.1 million of Medicaid reimbursement. As a result, the districts did not receive at least $770,000 in Medicaid revenues. The eight districts reported a little more than $3.65 million in revenue from Medicaid reimbursements. If similar conditions exist in the ten counties covering northeastern New York State, districts within that region could collectively be entitled to receive over $4.3 million more in revenue over the two-year period.
Five of the eight districts had difficulty obtaining the proper documentation from service providers, including their respective BOCES, that was needed to file claims. Three districts also did not bill claims regularly which resulted in a backlog of unfiled claims. Five districts did not review Medicaid claim denials for the potential of claims resubmission. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding claiming Medicaid reimbursement.
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This was a financial statement audit of the Tuition Reimbursement Account (TRA). The TRA's statement of revenues, expenditures, and changes in fund balance for the two fiscal years ended March 31, 2006 and March 31, 2007 and the related balance sheets (statements) were audited and, in the opinion of the auditors, the statements present fairly, in all material respects, the TRA’s financial position as of March 31, 2006 and March 31, 2007.
The report on Department compliance found the Department is currently not in compliance with the interpretation of law by the Office of the State Comptroller, as it pertains to certain TRA assessment provisions. However, the Department has taken action to revise the Commissioner's Rules and Regulations as well as to obtain legislative revision. |
As of the date of these statements, the Legislature has not enacted the Department's proposed changes.
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Cash receipt and disbursement duties were not properly segregated and receipts were not issued for 15 of 30 items tested totaling $24,385. The board also failed to provide proper oversight by requiring monthly and quarterly financial reports. Additionally, the reports that were submitted to the board did not always include all financial activity or bank reconciliations, and bank reconciliations were not always accurate or prepared in a timely manner.
A single bank account was used to process checks for claims and payrolls and to deposit and disburse moneys held in trust. Scholarship moneys totaling $62,900 were also temporarily used during the year to pay general fund expenditures, and accounting errors went uncorrected until the year-end audit. Five payments totaling $3,575 were also made prior to authorization.
Club records for extraclassroom activities were not maintained in accordance with the Commissioner’s regulations or board policy, and quarterly reports were not submitted to the board. Additionally, all clubs did not have student ledgers and or/treasurers, and receipts totaling $6,296 were not properly supported by documentation. Payment orders totaling $2,250 were also not supported by invoices and $5,795 in payment orders were not signed by a student treasurer.
The District did not have complex enough passwords to deter delinquent computer activity, and computers did not log out users after a set number of failed login attempts to the network. Management also did not routinely review audit logs and there was no disaster recovery plan in place. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding cash receipts and disbursements, extraclassroom activity funds and information technology.
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The District can save approximately $26,000 annually by requiring users to power down computers during all periods of inactivity, in addition to enabling power save settings.
The District will also reduce greenhouse gas emissions by 182,772 pounds per school year.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding computer energy conservation.
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Select Benefits is a provision in the collective bargaining agreement which allows members of the Vestal Administrator's Association (VAA) to earn amounts between $1,000 and $1,500 annually, and to accrue a maximum of three years of allowances for purchase or reimbursement of certain items related to their job duties. District officials did not properly administer the Select Benefits program. There was employee misuse of equipment, questionable equipment requests, and overpayments to employees. A sample of the Select Benefits program was reviewed, and several purchases appeared excessive for their intended use. Items included three digital cameras ($1,590), three high end laptops ($8,474), two desktops and a laptop combined ($3,742), and a 37-inch television ($999). The District also overpaid three employees by $1,412.
Further, the director of computer services has not implemented procedures that address user access for the District’s computer system.
The cafeteria director also did not establish a system of controls or procedures to ensure that all cash from vending machine sales was accounted for. He did not establish procedures to track sales of units and then reconcile those figures to cash collected.
The board appointed an employee of the Broome Tioga BOCES central business office to serve as its claims auditor for the 2006-2007 and 2007-2008 fiscal years. This arrangement is not appropriate because the District paid the BOCES approximately $7.7 million during the 2006-2007 for various services including the internal claims audit function.
Finally, the District had no formal procedures for staff to follow in distinguishing employees from independent contractors, but based such classification on general knowledge of the individual worker. |
The report’s recommendations focused primarily on strengthening the policies and procedures regarding the Select Benefits administration, safeguarding computerized data, cash from vending machine sales, appointment of claims auditor and the classification of employees.
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The BOCES has not adopted a formal payroll policy, and controls were generally adequate. The board did not adopt a cash receipts policy and, as a result, procedures for collecting, recording, and depositing cash were inconsistent and left the BOCES at risk of loss. Cash was not always deposited in a timely manner, and the board did not have a formal policy established for the provision of meals and refreshments at BOCES functions.
The BOCES expended over $88,000 for meals and refreshments that did not always have prior approval or adequate supporting documentation. Proper control was also not exercised over monitoring the receipt and use of gasoline and diesel fuels.
Finally, the board placed two professionals who should have been treated as independent contractors on the payroll and incorrectly enrolled them in the Employees’ Retirement System. |
The report’s recommendations focused primarily on strengthening the policies and procedures over internal controls and the classification of employees.
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The board increased the former superintendent’s longevity recognition payment by $39,000 11 days before his retirement. The payment should not have been increased for someone who had already announced his retirement.
Further, there were four instances where District officials or employees had an interest in contracts that were not formally disclosed to the board. One of these instances was prohibited by law. The District made payments totaling $29,749 to a limited liability company for assistance with the set up and maintenance of District computer equipment, where a part-owner is a board member.
There were also control weaknesses in the claims audit process, which the District officials have since corrected.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding the former superintendent’s longevity payment, interest in contracts, and claims processing.
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It was estimated that the District can save at least $35,000 annually by initiating a District energy conservation policy governing computer usage to require users to power down their computers in periods of inactivity and to enable power save settings.
By implementing these procedures, the District will not only save money, but also decrease contributions of greenhouse gas emissions by 207,000 pounds per year.
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The report’s recommendations focused primarily on strengthening the policies and procedures regarding policy guidance, power management and environmental impact.
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Attachment V
Regents Subcommittee on Audits
November 2008
Possible Policy Change
Requirement for Mandatory Training for Claims Auditors
Background
Section 1724 of Education Law generally requires that no claim against a school district, except for payroll and payment of debt, can be paid without being presented to and audited by the board of education. However, the law allows a school board, in its discretion, to adopt a resolution establishing the office of claims auditor and to appoint a claims auditor to carry out the board’s responsibilities for auditing claims. The claims auditor has the power and duties of the board of education with respect to claims auditing, allowing or rejecting all accounts, charges, claims or demands against the school district. The claims auditor can be an employee of the district, or the district may use an independent contractor, inter-municipal cooperative agreements, or BOCES shared services, if permitted by §1950. The claims auditor cannot also serve as a member of the school board, the district clerk, the district treasurer, the superintendent of schools or other official or personnel directly involved in purchasing and accounting responsibilities. The claims auditor reports directly to the school board. Most school districts do appoint a claims auditor and, therefore, delegate responsibility to that individual.
School district audits conducted primarily by the Office of the State Comptroller (OSC) have identified numerous audit findings involving the position of claims auditor. Those findings have described weaknesses in the claims auditing function. Among the findings observed by OSC audits are: the claims auditor not appointed and claims not reviewed by board or only some claims are reviewed; the claims auditor is unqualified or lacking independence; the claims auditor is not reviewing all claims; and claims are approved with a lack of documentation to support the expenditure. The audits have also identified numerous findings in the area of procurement which a proper audit of claims would detect. Among the findings in the area of procurement are: lack of execution of a contract; failure to competitively bid for goods and services; failure to use purchase orders; lack of proper approval of the purchase; and payments being made without adequate supporting documentation.
Policy Change
Establish a requirement that claims auditors undergo mandatory training. Such a requirement should be established to ensure a uniform and comprehensive review of claims occurs in school districts that utilize the claims auditor function.
Training Topics
The final curriculum for training claims auditors should be subject to approval of the Department. It would include such topics as:
- The legal role of a claims auditor
- Responsibilities of a claims auditor
- Relationship with the board of education
- Independence
- Procurement law and regulations
- Types of claims ( ie. leasing, construction projects)
- Criteria for auditing claims
- Documentation requirements
It is anticipated that the required training could be provided in a four-hour session.
Recommendation
We recommend that the Regents Subcommittee on Audits recommend and refer to the Committee on Elementary, Middle, Secondary and Continuing Education an amendment to Section 2102-a of Education Law to require that, if a district creates an office of claims auditor, the claims auditor must receive Department approved training within the first six months of appointment. The curriculum used for training of claims auditors shall be approved by the Commissioner. Each claims auditor shall demonstrate compliance with the requirement by filing with the district clerk a certificate of completion.
With your approval, staff will move forward by reaching out to organizations representing school districts as well as OSC to obtain their input into this proposed policy change.