TO:

The Honorable the Members of the Board of Regents

Subcommittee on Audits

FROM:

Theresa E. Savo                          

SUBJECT:

Board of Regents Oversight – Financial Accountability

DATE:

December 30, 2009

STRATEGIC GOAL:

Goal 5

AUTHORIZATION(S):

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

Date:  January 2010

Time:  TBD

Location:  TBD

TOPIC

OUTCOME

WHO

MINUTES

Opening Remarks

Chair

3

Review Agenda

Information

Conway

2

Completed Audits – Including a Summary of the Department’s Internal Audit Workgroup (Attachment I), Summary of Audit Findings (Attachment II), and Audit Report Abstracts (Attachment (III)

Questions answered

Department and OSC Audit Staff

25

Follow-up Process to OSC Audits (Attachment IV)

Information

Department Staff

15

Office of Audit Services

* Niagara Falls City School District (footnote 1)

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√

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Office of the State Comptroller

* ASA Institute of Business and Computer Technology (footnote 6)

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Batavia City School District

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Beacon City School District

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Binghamton City School District

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* Canandaigua City School District (footnote 4)

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Canton Central School District

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Cattaraugus-Allegany-Erie-Wyoming BOCES

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Chautauqua Lake Central School District

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Colton-Pierrepont Central School District

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Franklin-Essex-Hamilton BOCES

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Greater Southern Tier BOCES

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Hammond Central School District

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Island Park Union Free School District

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* Jasper-Troupsburg Central School District (footnote 2)

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Lisbon Central School District

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Maine-Endwell Central School District

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Malverne Union Free School District

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Middle Country Central School District

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√

√

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Middleburgh Central School District

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√

√

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Oneida-Herkimer-Madison BOCES

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Otsego Northern Catskills BOCES

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* Rondout Valley Central School District (footnote 5)

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Roosevelt Union Free School District

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** St. Lawrence-Lewis BOCES

Schenectady City School District

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*State Education Department – Follow-up Report on Higher Education Opportunity Program (2009-F-27) (footnote 3)

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Syracuse City School District

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Valley Stream Union Free School District #24

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Valley Stream Union Free School District #30

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Watertown City School District

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New York City Office of the Comptroller

New York City Department of Education's Compliance with Reading First Program Spending Guidelines

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January 2010

11

7

10

10

15

13

3

7

3

1

3

6

* Other:

1

Contact Hours

2

Control Environment and Medicaid Reimbursement

3

Higher Education Opportunity Program (HEOP)

4

Medicaid Reimbursement

5

Required Board Member Training

6

Tuition Assistance Program

**

No Recommendations

May 2007 - December 2008

January 2009

February 2009

March 2009

April 2009

June 2009

September 2009

November 2009

January 2010

Running Total

Procurement

163

13

16

7

4

8

26

21

11

269

Capital Assets

19

0

0

0

0

0

0

1

0

20

Claims Processing

151

3

8

2

1

3

9

9

7

193

Payroll

168

12

11

1

1

4

16

20

10

243

Cash

130

5

13

2

1

3

14

17

10

195

Financial Reporting

101

8

11

5

2

7

17

13

15

179

Information Technology

162

10

12

6

3

5

24

16

13

251

Capital Construction

5

0

0

0

0

0

0

0

0

5

Extraclassroom Activity Fund

16

1

0

0

1

0

3

1

3

25

Segregation of Duties

65

1

2

1

0

0

6

12

7

94

Budgeting

19

1

0

1

0

6

1

4

3

35

Conflict of Interest

21

1

3

0

0

0

5

4

1

35

Fingerprinting

9

2

0

2

0

0

3

1

3

20

Other

55

23

5

1

3

6

21

27

6

147

Total

1,084

80

81

28

16

42

145

146

89

1,711

Office of Audit Services

Audit

Major Finding(s)

Recommendation/Response

Niagara Falls City School District

Employment Preparation Education (EPE) Program

EPE-0808-1

8th Judicial District

(Fiscal Concern District)

$4,167,602 adjustment

It was found that the District had vastly over-reported allowable contact hours. The District did not have control systems to provide assurance that only allowable hours were reported to the Department. As a result, the District received $4,167,602 in excess Employment Preparation Education (EPE) Aid during the audit period. There were numerous instances where contact hours were claimed for students under twenty-one, or at least had a high school diploma. Student folders were also not maintained in a manner consistent with the Manual, and many folders lacked date of birth and diploma status information. Further, the District did not properly maintain attendance for all classes, and in some cases, the entire class was disallowed because logs were not provided for students selected for those classes. The Manual also states that EPE programs must pretest students, as well as test in intervals to determine status and progress; however, many student folders did not contain copies of the testing, and many tests were missing information. Two teachers were also found to be uncertified.

It was also found that the District used EPE Aid to subsidize other District activities and some EPE allowable expenditures were not claimed. Budgeted fringe benefits were claimed as opposed to actual costs, the District claimed two expenditures for personal service costs more than once, and not all allowable expenditures were claimed.

Finally, the Adult Student Information System and Technical Support (ASISTS) computer program data was not reliable, and the Adult Literacy Information and Evaluation System (ALIES) computer program showed summary reports that were not in agreement with what was claimed.

18 recommendations

The report’s recommendations focused primarily on unapproved programs, student eligibility, student folder information, undocumented attendance, intake and assessment, testing, and teacher certification. Recommendations also focused on improving claiming appropriate allowable expenditures, and the assurance that computer systems have up-to-date and accurate information.

The District acknowledges the recommendations, and will comply with them as indicated in their response. The District further acknowledges the recommendations for it to repay the unearned EPE aid as identified. The District proposes that it be permitted to repay the obligation over a three-year period of time. The District has already addressed many of the recommendations.

Office of the State Comptroller

Audit

Major Finding(s)

Recommendation/Response

ASA Institute of Business and Computer Technology

Tuition Assistance Program

2008-T-4

2nd Judicial District

$649,009 adjustment

It was determined that the ASA was overpaid $649,009 because school officials incorrectly certified eight students as eligible for eleven Tuition Assistance Program (TAP) awards. Two Hundred randomly-selected awards were reviewed, and from the review, eight awards were disallowed (totaling $17,780).  A statistical projection of the audit disallowances to the entire population, using a 95 percent single-sided confidence level, results in an audit disallowance of $641,768. Three awards (totaling $7,241) were also disallowed; however, these awards were not projected to the population.

2 recommendations

The report’s recommendation to HESC, stated that HESC should recover a total of $649,009 ($641,768 and $7,241), plus applicable interest from the ASA.

The report’s recommendation to the Department was to ensure that ASA officials comply with Department requirements relating to matriculation, accelerated TAP and accuracy of transcripts.

The HESC deferred their response to Department’s response, as the matters involve the interpretation of Department regulations.

The Department agreed with recommendations to HESC, as well as their own recommendation. They have stated that they will provide guidance to ASA officials to ensure that the institution complies with the requirements for the proper administration of State student financial aid.

Batavia City School District

Internal Controls Over Selected Financial Operations

2009M-143

8th Judicial District

The board of education failed to ensure that employees only receive compensation and separation payments to which they are entitled. The annual compensation of 17 employees was reviewed, and it was found that 59 percent of the employees were overpaid or received compensation which was not provided for in the applicable contracts or supported by sufficient documentation. Three out of six employees were also found to be overpaid when the monetary values of their unused leave time were reviewed.  Overall, there was more than $50,000 in improper or unsupported payments.

Further, District officials routinely overestimated appropriations and underestimated revenues, which has consistently resulted in operating surpluses of $6 million total, over the last five years.

The amount of $7.3 million has been inappropriately placed in reserves, rather than being used to benefit taxpayers. The District’s reported reserve for encumbrances in 2008 was $1.4 million. The supporting documentation was also reviewed for 33 encumbrances (totaling $569,849), and it was determined that 18 of the 33 (totaling $488,701) were inappropriately accounted for as encumbrances.

11 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding separation payments, operating surpluses, reserves, and encumbrances.

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

Beacon City School District

Internal Controls Over Selected Financial Operations

2009M-161

9th Judicial District

The District had not developed adequate procedures to effectively procure quality professional services at reasonable prices. Twenty-one payments were reviewed (totaling $549,000) that were made to seven vendors for professional services, and it was found that District officials did not solicit competitive proposals or quotes for four vendors. Additional payments made to the four vendors were also reviewed, and it was found that the District paid over $840,000 to three firms for services, and over $120,000 to a firm for legal services.

The treasurer routinely disburses millions of dollars of District moneys through wire transfer. Except for bond payment transfers approved by the assistant superintendent for business, wire transfers initiated by the treasurer are not authorized, reviewed, or approved by another individual.  

The District also does not store back-up copies of computer data in a secure off-site location, and the data on the copies is not restored to verify its integrity.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the procurement of professional services and competitive bidding, internal controls in relation to wire transfers, and the District’s back-up of data and other important information.

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

Binghamton City School District

Computer Recyling and Internal Controls Over Selected Financial Activities

2009M-162

6th Judicial District

(Contract for Excellence

District)

The District effectively recycled more than six tons of computer and computer related equipment during the 2007-08 fiscal year.

The board of education appointed an employee of BOCES as the District’s claims auditor which is against the New York State Education Department’s (SED) guidance on interpreting regulations, which states that it may not be appropriate for a BOCES to provide claims auditing services to its component districts, since most of these districts would have material and significant contract payments to that BOCES. The BOCES received more than $9.9 million from the District in 2007-08. The board also appointed a second BOCES employee to serve as the District’s deputy claims auditor; however, there is no provision in Education Law that permits the board to appoint more than one claims auditor. The claims auditor also did not report directly to the board, as required.

The director of food services also did not monitor the financial activities of cafeteria operations to ensure the segregation of key duties or institute compensating controls.

4 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding computer recycling, the claim auditor, and the safeguarding of cafeteria money.

The District has indicated that it recognizes the findings and the recommendations and has indicated that it will forward the appropriate corrective action plan.

Canandaigua City School District

Internal Controls Over Selected Financial Operations

2009M-148

7th Judicial District

The District and the state lost approximately $335,114 in Medicaid reimbursement from July 2008 through October 31, 2008, due to the District’s lack of implemented policies and procedures to correctly identify responsibilities for data collection; documentation; the submission and reconciliation of claims; and did not effectively monitor the reimbursement process.

Additionally, the duties of the treasurer were not properly segregated. The treasurer maintained the books of original entry, general, and subsidiary ledgers. The treasurer also invested cash; made inter- fund and inter-bank transfers; signed checks; and reconciled bank statements.

Finally, board of education adopted policies and administrative procedures regarding the adequate safeguarding of extraclassroom activity funds were not followed.

14 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding Medicaid reimbursement, the segregation of the treasurer’s duties, and policies concerning extraclassroom activity funds.

The District disagreed with and asked that a recommendation be removed pertaining to developing policy and procedures related to new Medicaid guidelines as they are issued. The District asked the recommendation be removed because it is related to future actions and not a citation of current procedures. The District also disagreed with the assessment that mitigating controls in the treasurer's office were not in place due to the July 2008 resignation of the coordinator of administrative supports services.

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

Canton Central School District

Internal Controls Over Payroll

2009M-164

4th Judicial District

The treasurer performs almost every phase of the payroll process without proper oversight. District personnel were also unaware that payroll change reports could be generated, and, therefore, did not generate or review them.

Further, the superintendent signs a payroll certification sheet without reviewing payroll information for the accuracy, employee existence, and or/completeness.

There were no exceptions identified during the testing of payroll.

2 recommendations

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

The District agreed with the recommendations and has indicated that they have already implemented corrective action.

Cattaraugus-Allegany-Erie-Wyoming BOCES  Internal Controls Over Selected Financial Activities

2009M-151

8th Judicial District

BOCES management of operating surpluses is ineffective. BOCES had no authority to establish a trust account for post- retirement health costs, which totaled $11.3 million in June 2008. Operating surpluses were transferred to the trust and agency fund instead of being returned to the surpluses to component districts, as required. As a result, at least $11.3 million was not properly refunded to the component school districts.

There were also weaknesses in BOCES’ internal controls over its computerized accounting system administration. BOCES did not properly separate user access and administrative functions within applications and did not properly separate accounting duties from the ability to print and sign checks.

Finally, a BOCES employee cannot be considered independent for purposes of performing an internal audit. BOCES billed the 18 participating districts a total of $43 million in 2007-08, and $45.7 million in 2008-09 for services. Based on the material nature of these payments by the districts to the BOCES, the BOCES employee serving as the internal auditor is not independent in performing school district internal audits.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the repayment of monies set aside for Other Post Employment Benefits (OPEB),  properly refunding surplus to component districts, security and user permissions for accounting application systems, the internal auditor, and the use of the treasurer’s electronic signature.

BOCES officials did not generally agree with the recommendations, but indicated they will examine areas identified in the Audit Report and undertake corrective action as necessary.

Chautauqua Lake Central School District  Internal Controls Over Reserves

2009M-172

8th Judicial District

The District has four reserves in the general fund with reported balances totaling $2.3 million, and a fund balance of $519,455 in the Debt Service Fund as of June 30, 2008. It was determined that District officials provided funding for the Capital Reserve which exceeds the amount approved by the voters by $400,000 and could not specifically associate debt issues with any portion of the unused fund balance.

2 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding reserves and fund balances in the Capital Reserves and the Debt Service Fund.

The District has agreed to return any payments to the Capital Reserve Fund in excess of $2,500,000 to the General Fund, and also intends to work toward increasing the ultimate amount of its Capital Reserve Fund via a new voter referendum as soon as is practical and to conduct a legal review of its practices. The District has also agreed to identify Debt Service Fund, and then develop a plan to pay debt service expenditures from these funds, or return these funds to the General Fund.

The District has agreed to implement corrective action as soon as possible to address the recommendations.

Colton-Pierrepont Central School District  Internal Controls Over Financial Operations

2009M-158

4th Judicial District

The duties of the District business manager were not properly segregated, which places most aspects of the financial cycle under the control of one individual. There were no major discrepancies found.

District officials did not ensure that wire transfers to open and close CDs are reconciled to cash balances in the accounting system, or that CD balances are included in the treasurer’s monthly report to the board of education.

2 recommendations

The recommendations focused primarily on strengthening the polices and procedures regarding the segregation of the business manager’s duties, and the requirement of the treasurer to provide information on cash balances, as well as adequate documentation of all wire transfer activity.

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

Franklin-Essex-Hamilton BOCES  Internal Controls Over Selected Financial Activities

2009M-171

4th Judicial District

Internal controls over administrative staff compensation and expenses were not appropriately designed or operating effectively. As a result, six administrative staff members received compensation (totaling $5,162) that was not authorized by the board. In addition, administrative staff did not use BOCES-provided vehicles and cellular phones in accordance with the board’s established policies and procedures. A significant percentage of mileage for certain administrator-assigned vehicles was for non-business purposes (at an estimated value of $22,956).

Further, internal controls over absences and leave time were not appropriately designed or operating effectively. Leave time (valued at over $58,950) was not credited or used in accordance with terms in employment contracts or collective bargaining agreements.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding administrative staff compensation and expenses, specifically pertaining to administrator-assigned vehicles and cellular phones. The report’s recommendations also focused on the improvement of internal controls over leave time.

BOCES officials agree with the recommendations and have indicated that corrective action will be implemented as soon as possible, if it has not been done already.

Greater Southern Tier BOCES

Regional Information Center

2009M-230

6th Judicial District

It was found that the Regional Information Center (RIC) had unlimited access to all school districts’ networks and the financial applications that they service. RIC personnel had administrator rights on the financial systems application, giving them the ability to access all modules within this application.

1 recommendation

The report's recommendation was for BOCES officials to set up user accounts so that RIC personnel can access only those school districts' networks and financial applications that are necessary for them to complete their job duties.

BOCES officials agreed with the finding, and indicated that they would initiate corrective action.

Hammond Central School District

Internal Controls Over Selected Financial Operations

2009M-160

4th Judicial District

The treasurer is the only business office staff person, and, therefore, performs incompatible cash disbursements and bank reconciliation duties. Procedures for claims auditing have also not been followed, which resulted in 47 of the 165 claims tested (totaling $387,889) not being listed on warrants to indicate they have been audited or approved by the board of education. No other discrepancies were found.

2 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the proper segregation of duties in the District business office, as well as the proper procedures for claims auditing.

The District agreed with the recommendations and has indicated that they are developing a plan of action to alleviate the concerns. The District has also indicated that some courses of action have already been put into practice at the present.

Island Park Union Free School District

Internal Controls Over Selected Financial Operations

2009M-98

10th Judicial District

As of June 30, 2008, the District had accumulated $526,215 more than necessary to satisfy all liabilities against the employee benefit accrued liability reserve (EBALR) fund. Additionally, the District paid compensated absences costs from operating funds, in effect using the EBALR to avoid exceeding the statutory limit for retained fund balance. District officials did not allocate the interest earned on the investment of reserve fund monies to the respective reserves, as required, but instead recognized an estimated $295,000 in interest earned over one year’s time as general fund revenue.

District officials allowed three budget transfers (totaling $237,000) to be made without prior board of education approval. There were also seven hand-drawn checks (totaling $396,845) issued before a warrant was duly executed as required. Further, duplicate checks were prepared for the same $2,330 claim.

The District did not request public bids for two purchases (totaling $42,912) and two public works contracts (totaling $109,143). They also did not solicit competition for nine of the ten professional service contracts tested (totaling $255,371), and did not have written agreements for $92,265 in services from three of the providers. The claims auditor did not report these deficiencies to the board of education. Further, the District did not comply with Department regulations for a capital construction project (totaling $387,750).

Additionally, overtime was not monitored, properly authorized, or documented. Of the $200,961 that the District paid for overtime, 11 employees received $138,503 without written pre-approval or justification.

Finally, access to the student data server room was not monitored, and there were weaknesses in controls over the District’s retirement reporting to the Employees’ Retirement System.

26 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding reserve funds and fund balance; budget transfers; purchasing and the solicitation of competition; project funding; overtime; and access to the student data server room.

The District agreed with the recommendations, and has indicated that they have already implemented corrective action to address the majority of the findings. Corrective action will be taken for the remainder of the recommendations as soon as possible.

Jasper-Troupsburg Central School District  Budgeting Practices and Internal Controls Over Selected Financial Operations

2009M-85

7th Judicial District

The board of educaton and the District developed unrealistic and inaccurate budgets. The budgets presented for voter approval incorrectly combined special aid and general fund revenue and appropriation amounts. They also excluded over $600,000 annually from the budgeted State aid revenues and budgeted appropriation for the state’s portion of bond payments, as well as excluded average annual transfers of about $162,000 to the Reserve for Capital 2005. It was also found that the District inappropriately used monies from the Employee Benefit Accrued Liability Reserve (EBALR) for purposes that did not conform to legal requirements. Further, the District’s debt service fund holds about $214,000 that could be used for purposes to benefit taxpayers.

Four of the seven board members have not received any fiscal oversight training.  Two of the four are not required to have the training until re-elected and have decided not to attend until that time.  The other two cited a lack of time and knowledge about the requirement.

The board and District officials did not develop and implement payroll policies and procedures to ensure that salary and benefits are authorized and accurate. As a result, the District paid $109,696 in unauthorized salary increases, $22,000 for a retirement incentive that the employee was not eligible to receive, and $2,261 from a flexible benefits program after the reimbursement period had expired.

The District and the state also each potentially lost about $112,388 in Medicaid reimbursements from July 1, 2006 through April 30, 2008, due to the District’s lack of policies to define responsibilities, as well as neglecting to effectively monitor the reimbursement process.

Finally, none of the 20 purchases reviewed (totaling $48,945) complied with the District’s purchasing policy. Purchases from five vendors (totaling $277,480) were not competitively bid as required. Credit card purchases (totaling $11,231) were also not properly authorized, and professional services were not obtained using a Request for Proposal.

24 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding control environment and board training; funds and reserves; budgeting and fiscal management; salary adjustments; benefits; separation payments; Medicaid; the purchasing policy; and the claims auditor.

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

Lisbon Central School District

Internal Controls Over Financial Operations

2009M-197

4th Judicial District

The District has not adequately segregated duties over payroll or the cash receipts process. Further, the use of the business manager/treasurer’s facsimile signature is not adequately supervised or controlled. The computerized accounting system has inadequate access controls, and access is not limited to just the functions needed to perform regular job duties.

As a result of these weaknesses, cash receipt transactions, cash disbursements, as well as payroll records for the business manager/treasurer and the accounts payable clerk, were reviewed. No discrepancies were found; however, the lack of proper controls over the segregation of duties, the use of the check-signing machine, and access to the computerized accounting system, makes the District vulnerable to the misappropriation of funds.

3 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the segregation of duties over payroll, the cash receipts process, the use of the business manager/treasurer’s facsimile signature, and access controls over the computerized accounting system.

The District agreed with the recommendations, and is currently working towards a corrective action plan. In addition, the District stated that the check-signing machine was discontinued July 1, 2009, and all checks are now manually signed by the treasurer.

Maine-Endwell Central School District

Internal Controls Over Selected Financial Activities

2009M-120

6th Judicial District

Funds in the amount of $6.7 million have been tied up due to accounting errors or in unnecessary reserves that the District could be using to benefit taxpayers. District officials made incorrect adjustments to the District’s accounting records at the end of the year, resulting in the board of education believing there was $1.6 million of unreserved fund balance in the general fund, when in fact, they had over $5.3 million. The District also had a balance of nearly $1 million in the unemployment insurance reserve which was sufficient to pay for the District’s average unemployment claims for over 100 years. The District did not use the unemployment reserve or their Employment Benefit Accrued Liability Reserve (EBALR), with a balance of almost $2 million, to pay for appropriate reserve expenditures.

The treasurer’s duties were not sufficiently segregated, and there was a lack of controls over the treasurer’s computerized signature and manual checks.

Further, the District expended a total of $27,000 to pay health insurance premiums for two retirees after they were deceased. After this was brought to the District’s attention, the individuals were removed from the District’s health insurance policy. One hundred percent of the overpayments were credited.

Finally, the District has not established a formal disaster recovery plan.

13 recommendations

The report's recommendations focused on appropriately establishing and using reserve funds, updating policies related to the treasurer's duties to address segregation of duty concerns, complying with claims auditors guidelines and verifying eligibility of retiree health insurance recipients.

The District disagrees with the calculations regarding the EBALR and the unemployment insurance reserve.

The District agrees with the remainder of the recommendations, and has indicated that they plan to implement corrective action as soon as possible.

Malverne Union Free School District

Internal Controls Over Selected Financial Activities

2009M-209

10th Judicial District

The District has reserved approximately $1.1 million more in its Employee Benefit Accrued Liability Reserve (EBALR) fund than its liability for compensated absences. Further, the District did not use the EBALR funds to pay employees for compensated leave benefits, and instead the District used general fund appropriations for these costs, and levied taxes to pay for them.

It was also found that the District’s unreserved fund balance of $2,379,966 exceeded the legal limit of four percent of the ensuing year’s budget by $639,398 at June 30, 2008. District officials told us this excess fund balance was intended to pay other post-employment benefit (OPEB) costs; however, since there is no legal authorization to reserve funds for OPEB expenditures, this amount is part of the District’s unreserved fund balance. If the District’s unreserved fund balance were recalculated to include the excess EBALR monies, the District’s fund balance on June 30, 2008 would exceed the legal limit by $1.74 million.

Further, the District paid five administrators a total of $226,714 for separation payments that were based on a collective bargaining agreement whose vague terms allowed administrators to determine their own method of calculating a payment. The District also paid one administrator $31,860 that was not authorized by the board of education.

The District also paid the treasurer $19,350 as an independent contractor although statute and regulation clearly indicate that an independent contractor cannot be a school officer. The treasurer also does not properly control District disbursements by controlling the use of his signature disk, or review canceled checks.

Finally, the District paid six professionals a total of $184,384 without using Requests for Proposals when procuring professional services.

9 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the EBALR fund, the unreserved fund balance, collective bargaining agreements and separation payments, the treasurer’s duties, and the Request for Proposal process.

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

Middle Country Central School District

Internal Controls Over Selected Financial Activities

2009M-192

10th Judicial District

The District’s unreserved and unappropriated general fund balance on June 30, 2008, totaled $11.7 million, or 6 percent of the appropriations for the 2008-09 fiscal year. This amount is $4 million greater than the amount allowed by law. An additional $19.3 million was held in reserve funds, and at least $8 million of that total was in excess of amounts required to fund the liabilities associated with those reserves.

Further, District personnel did not consistently solicit competition when seeking to obtain professional services. Payments made to 12 professional service providers (who were paid a total of $2.2 million) were reviewed, and it was found that the District did not solicit request for proposals (RFPs) prior to selecting eight of the providers, who were paid a total of $741,040.

The District overpaid five employees $45,315 for separation payments that were greater than the amounts due per provisions of their collective bargaining agreements. Additionally, the deputy superintendent for instruction certifies only the payroll transaction summary report. The deputy superintendent is not provided with a list of employees and their payroll amounts to effect a proper certification.

Finally, the District’s director of finance and the purchasing agent both have administrative access rights to the computerized financial system, which is not necessary in order to perform their job duties.

10 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the general fund balance, solicitation of competition and professional service contracts, employee overpayment, and appropriate access to District computers. 

The District disagreed with the recommendations pertaining to the financial condition and fund balance; appropriations and reserves; professional service contracts; and computer access controls. The District generally agreed with the recommendations regarding payroll and employee overpayment, and payroll certification. The District has agreed to implement the majority of the recommendations.

Middleburgh Central School District

Internal Controls Over Selected Financial Operations

2009M-74

3rd Judicial District

It could not be determined whether or not the board of education actually approved all terms and conditions of a contract amendment provided to a prior superintendent, and, as a result, the District may have inappropriately paid $34,582 to the prior superintendent since his retirement. The District may also have improperly paid the prior superintendent $31,750 for his leave time.

Further, the purchasing agent did not approve purchase orders for $2.5 million of District purchases. District staff also did not solicit competitive bids or written or verbal quotes for purchases totaling $650,000.

The treasurer was also performing inaccurate bank reconciliations which caused a total of approximately $3.1 million of errors within the accounting records, and did not submit cash and budget status reports to the Board in a timely manner. The business administrator did not file financial reports with the Department in a timely manner, and duties over the cash receipts and disbursements process were not properly segregated.

The District was not complying with the New York State Education Law pertaining to fingerprinting employees and independent contractors. It was found that the District had not performed the proper background checks on nine employees and contractors.

The Capital Region BOCES employee who is serving as the District’s internal auditor is not independent in performing the internal audit function. The District staff had excessive user access rights within the financial software that is not necessary to conduct their job duties, and staff members are modifying user accounts without written documentation to indicate the purpose for doing so. There were also significant weaknesses in the District’s contract agreements for IT services and password security controls.

14 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding payments and benefits to the prior superintendent, purchasing, cash receipts and disbursements, criminal background checks, internal audit function, and computerized data and assets.

The District agreed with the recommendations and has indicated that they have already addressed many of the concerns identified in the report and will continue to implement corrective action.

Oneida-Herkimer-Madison BOCES  Internal Controls Over Selected Financial Activities

2009M-177

5th Judicial District

There is no statutory mechanism for BOCES to accumulate monies over fiscal years to fund liability for post-employment health care benefits.  In addition, BOCES are not allowed to establish a reserve fund and accumulate monies across fiscal years for general capital purposes, such as future construction. However, it was found that BOCES officials improperly set aside monies collected from component school districts for post-retirement health insurance costs and for potential capital projects. As of June 30, 2008, the BOCES had approximately $6.0 million in district funds set aside for these two purposes that are not authorized by law. The capital budget monies (totaling $2.1 million) were returned to the districts on June 24, 2009.

BOCES officials also have not established adequate internal controls over non-payroll cash disbursements and over cash receipts; however, testing did not reveal any inconsistencies or improper payments.

11 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding capital budget monies, and internal controls over cash disbursements and receipts.

BOCES officials agreed with the recommendations and indicated that they plan to implement corrective action as soon as possible.

Otsego Northern Catskills BOCES  Financial Operations

2009M-147

3rd Judicial District

The BOCES did not comply with Education Law and BOCES policy to ensure fingerprint-supported criminal history background checks were performed and filed with the Department. There were 15 out of 26 employees hired during the audit period who were not cleared for employment at BOCES.

Two vendors had access to and the ability to withdraw funds directly from the BOCES’ bank accounts. The vendors withdrew $30,800 from the BOCES’ bank accounts during the period.

Cash receipts totaling $51,000 were received by teachers of six Career and Technical Education (CTE) classes during the audit period, and it was found that duplicate press-numbered receipts were not issued for five of the six classes for monies received by the teachers, totaling $42,700. Duplicate press-numbered receipts were only issued for $21,600 of approximately $534,000 deposited by the account clerk at the Licensed Practical Nursing (LPN) site.

Finally, BOCES officials could not explain how they used $1,290 in liability fees ($15 per student) they had collected at the LPN site during the audit period.

7 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding fingerprinting and background checks for employees and contractors who have direct contact with students, vendor access to bank accounts, cash receipts, and the use of liability fees.

The BOCES agreed with the recommendations and has indicated that they will implement corrective action.

Rondout Valley Central School District

Internal Controls Over Selected Financial Operations and Cost Savings

2009M-178

3rd Judicial District

There was an unreserved, unappropriated general fund balance on June 30, 2008, of $5,400,270, which was 9.14 percent of the District’s 2008-09 budgeted appropriations, which therefore exceeded the four percent allowed by law. The District also reported a liability for retiree health insurance, even though there was no liability to report. General fund resources were understated by more than $3.1 million.

The District also does not print checks internally, and by doing so, an average of $40,000 could be saved annually.

The board of education has not established written procedures for the claims auditor, and the claims auditor does not adhere to all components of the claims auditing checklist provided by the internal auditor. One hundred claims were reviewed (totaling $775,325) and it was found that the claims auditor did not properly audit 57 claims (totaling $545,698). Deficiencies included a lack of itemization, and a lack of adequate and appropriate documentation. Although there were deficiencies found, there was no evidence of fraud.

Two out of the eleven board members did not obtain the required six hours of training on financial oversight, accountability and fiduciary responsibilities, within the first year of their term.  Without this required training, internal controls are weakened and the chance is increased that board members will not be able to safeguard District resources and taxpayer money.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the general fund balance, the check printing process, the claims auditor, the audit of claims, and the completion of required training by board members.

The District agreed with the recommendations and has agreed to implement corrective action.

Roosevelt Union Free School District

First Quarter Report on the 2009-10 Budget

2009M-228

10th Judicial District

At the completion of the first quarter of 2009-10 fiscal year, the District’s spending has generally been within the limits established by the board of education and its enacted budget. District officials have made significant progress in the use of the encumbrance system to monitor expenses.

The District encumbered 90 percent of unexpended personal service cost appropriations and 83 percent of other than personal service appropriations as of September 30, 2009. However, the District continues to over-expend various budget line codes and, in the first quarter, has over-expended budget codes by a significantly larger amount than in the previous fiscal year. District employees also processed three budget transfers, totaling $2.8 million, without board approval.

4 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures pertaining to budgetary transfers to over-expended accounts, appropriations for grant programs, the accuracy of budget transfer reports, and the proper approval of journal entries.

The District has not yet responded to this report.

St. Lawrence-Lewis BOCES

Internal Controls Over Purchasing

2009M-191

4th Judicial District

During the period July 1, 2007 to March 31, 2009, BOCES officials made payments totaling $58 million to vendors that were likely to be subject to competitive bidding, RFP’s, or quotes. Eighty-eight payments (totaling $479,541) were examined, and there were no discrepancies found.

There were no recommendations.

Schenectady City School District

Internal Controls Over Selected Financial Activities

2009M-154

4th Judicial District

The former head utility worker received over $50,000 in overtime compensation for duties attributable to facilities management and energy management. His timesheets did not clearly state the overtime hours that were allocated to each responsibility, and the District did not have additional supporting documentation detailing the duties that he performed during these hours.

Twelve of the payroll payments in the sample were incorrectly calculated, and, therefore, resulted in incorrect payments of $2,373. There were also weaknesses in the District’s internal controls over separation payments, which resulted in questionable payments to employees, totaling $26,026. The assistant superintendent for business also did not certify 11 of the 14 final payroll reports that were reviewed.

Further, 26 out of 50 claims tested (totaling $293,921) had one or more deficiencies. The claims auditor approved these claims for payment, although the claims did not comply with District purchasing procedures.

The board of education also appointed a certified public accounting firm to serve as the District’s internal auditor on December 5, 2007, almost a year after the requirement went into effect. The District received the internal auditor’s final risk assessment statements for the year ended June 30, 2007, on February 11, 2009. While the internal auditor should have provided the District with a risk assessment for the year ended June 30, 2008, by December 31, 2008, the internal auditor had not yet started it at the end of our fieldwork in May 2009.

District officials have not sufficiently used audit logs or changed reports to monitor the system for inappropriate access or unauthorized changes to the financial software. Employees also had access rights to the financial software, that were not required to perform their job duties.

9 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding overtime compensation and timesheet review, separation payments, purchasing procedures, duties of the claims auditor, the internal auditor, and appropriate computer access.

The District disagreed with the findings related to payroll disbursements, the claims auditor, the internal auditor, and computer access rights. The District has not indicated that they will implement corrective action.

State Education Department – Follow-up Report on  Higher Education Opportunity Program (HEOP)

2009-F-27

This was a follow-up audit. The objective of the initial audit, issued on August 14, 2008, was to determine whether HEOP funds were used for the prescribed purpose at a sample of schools that were selected for an audit. It was concluded that there was minimal risk that the four schools were inaccurately reporting HEOP enrollment to the Department, even though the schools’ expenditures reported to the Department did not always agree with the amounts shown in the schools’ accounting records. It was also found that the Department was two years behind in its completion of its annual reports.

 The objective of the follow-up report was to assess the extent of the implementation as of November 10, 2009, of the four recommendations included in the initial report. It was found that Department officials have made little progress in correcting some of the problems identified, and, therefore, additional improvements are needed. Of the four prior audit recommendations, one recommendation has been implemented, and three recommendations have not been implemented.

3 recommendations

The recommendations which have not been implemented are those pertaining to the follow-up with Long Island University-Brooklyn to verify that the school is complying with HEOP recordkeeping guidelines.

The Department also did not implement the recommendation stating that they use a risk-based approach during site visits to examine the schools’ accounting records. Finally, the recommendation to publish the HEOP annual report on time was not implemented.

Syracuse City School District

Internal Controls Over Selected Financial Operations

2009M-84

5th Judicial District

(Contract for Excellence

District)

Payments recorded as received in the accounts receivable records for the various types of billed services, totaled about $17 million. Testing identified funds that the District should have, but have not collected. The records the District did maintain were so inaccurate that they could not be relied upon. One example of this was that the accounts receivable recorded in the District’s detailed records at December 2, 2008, were overstated by at least $1.24 million, or 40 percent. There is no formal process in place to monitor and enforce unpaid bills.

Further, certain District employees had incompatible duties. For example, those who handled cash receipts also had recordkeeping responsibilities or had access to the computerized receivable records and could make changes to the accounts without supervisory approval, and without leaving an audit trail.

The District set up a school account that is controlled by the principal and/or other staff members, which they had no legal authority to set up. There was about $107,000 reported in this account as of June 30, 2008.

Additionally, there were weak controls found over the extra-classroom activity (ECA) fund, as well as in school accounts. Testing of disbursements disclosed payments totaling $3,400 that had no supporting documentation, and payments totaling $23,700 that lacked adequate support. Procedures to control cash disbursements and cash receipts were not adequately followed, and inactive accounts were not reviewed regularly.

Undetected errors routinely occur in the District’s payroll process. Testing disclosed that the District provided about $19,500 in compensation and benefits to employees that were either overpayments, did not contain adequate supporting documentation, or lacked board of education authorization. The superintendent authorized a principal to roll over 50 sick days from her employment at another school district when the District hired her, without board approval. This could result in her being paid extra cash payments of about $10,625. Payroll duties were also not adequately segregated, and the District incorrectly reported the days worked for seven employees to the Employee Retirement System.

The District also did not use a request for proposal process when it re-appointed a law firm as the school’s attorney in May 2007. Without the benefit of competition, there is an increased risk the District will not secure legal services in the most cost efficient manner.

Finally, District officials have not yet developed an adequate formal disaster recovery plan, and it was not ensured that employees were given proper access rights to the computerized financial system.

28 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the maintenance of accounts receivable records for billed services, the segregation of duties over the cash receipts process; school accounts and the ECA fund; compensation and benefits; requests for proposals; and computer access controls.

The District agreed with the recommendations and indicated that they have already implemented corrective action in the majority of the areas mentioned in the report, and will address the remainder of the recommendations as soon as possible.

Valley Stream Union Free School District #24 Internal Controls Over Selected Financial Operations

2009M-141

10th Judicial District

District officials did not retain an unreserved, unappropriated fund balance within the statutory limit. As of June 30, 2008, the unreserved, unappropriated fund balance in the general fund totaled $3.09 million, which was more than three times the $1.02 million allowed by Law. The District had operating surpluses ranging from $1.5 million to $1.8 million, driven mostly by budgeted expenditures consistently being greater than the amount needed to fund operations. During the 2004-05 and 2005-06 years, excessive fund balances of $1 million and $1.8 million were transferred to legal reserve funds. Only $324,000 of the excessive balance was transferred during 2007-08.

Thirty-eight claims (totaling $22,055) were reviewed, and 18 of those claims (totaling $13,006) contained deficiencies pertaining to documentation and itemization.

Also, controls over student activities are not properly designed.

12 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding fund balance and operating surplus, the proper documentation of claims, and controls over student activities.

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

Valley Stream Union Free School District #30 Internal Controls Over Selected Operations

2009M-168

10th Judicial District

District officials did not always ensure that employees complied with the purchasing policy. District officials procured services from five professional service providers (totaling $198,624), without the benefit of competition. The District also paid two service providers $102,090 for legal services without a written agreement.

District officials did not ensure that criminal background checks were performed and filed with the Department’s Office of School Personnel Review and Accountability. Five individuals who were expected to have direct contact with students did not have updated background checks.

The District did not deactivate the access rights for 58 employees who had left District employment. Duties over the financial accounting software also were not properly segregated.

5 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding the procurement of professional services, background checks, and financial accounting software access for employees who were no longer employed by the District.

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

Watertown City School District

Internal Controls Over Purchasing

2009M-176

5th Judicial District

(Contract for Excellence

District)

The purchasing agent did not always ensure that goods and services were purchased in accordance with the District's procurement policy, regulations, and laws. The purchasing agent did not ensure compliance with the provision in the District's regulation requiring oral or written quotes for purchases under competitive bidding thresholds or the proper documentation of sole source and emergency situations. The purchasing agent did not comply with General Municipal Law or board of education policy by soliciting competitive bids for five contracts (totaling $425,868).

The board's purchasing policy also did not provide guidelines specifying the number of quotes to be obtained. Eleven contracts (totaling $56,395) did not contain proper documentation to provide proof that the District obtained quotes from more than one vendor. Purchase orders were also inappropriately declared sole source purchases, and the District did not always have documented price quotes.

3 recommendations

The report's recommendations focused primarily on strengthening the policies and procedures regarding the purchasing agent's compliance with District regulations for quotes for purchasing, competitive bidding requirements, and proper documentation for price quotes.

The District is in full agreement with the recommendations and will implement corrective action.

New York City Office of the Comptroller

Audit

Major Finding(s)

Recommendation/Response

New York City Department of Education (NYCDOE)

Audit Report on the Department of Education's Compliance with Reading First Program Spending Guidelines

FK09-079A

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

(Contract for Excellence

District)

The Reading First Program was created under the federal No Child Left Behind Act (NCLB) of 2001. The program was established in order to ensure that every student could read at, or above grade level by the end of the third grade and was intended to serve poorly-performing, low-income students. During Fiscal Year 2008, the New York City Department of Education (NYCDOE) received $34.4 million in Reading First funds from New York State, and expended these funds on 118 schools. Reading First will end on June 30, 2010, since its federal statute was not renewed and Congress discontinued funding for the program.

It was found that NYCDOE did not comply with Reading First federal and state spending guidelines, because it failed to systematically identify and fund public elementary schools with the highest percentages of students reading below grade level and the highest poverty levels, based on the most current available data, as well as on their neighboring non-public elementary schools. The NYCDOE also did not provide supporting documentation for goods and services for $9.5 million of $14.9 million of Reading First OTPS expenses.  The NYCDOE also expended Reading First funds (totaling $42,094) on goods and services that were not incurred during Fiscal Year 2008.

Based on NYCDOE’s OTPS expenditures, it was found that the NYCDOE spent $3.9 million to support an internet portal that was difficult or impossible for users to access because of connectivity issues. This portal was shut down on June 30, 2009.

Finally, Reading First program personnel did not have reading licenses as required by NCLB Federal Teacher Quality Requirements, the New York State sub-grant application, and NYCDOE.

6 recommendations

The report’s recommendations focused primarily on strengthening the policies and procedures regarding compliance with Reading First and state spending guidelines, providing proper supporting documentation for goods and services received, internet portal development, and proper licensing for all Reading First program personnel.

Program-specific recommendations were not made because the Reading First program will end on June 30, 2010, and NYCDOE has also terminated the “iRead First” internet portal. However, general recommendations were made for NYCDOE that focused primarily on properly expending and monitoring federal and state grant money, the maintenance of adequate supporting documentation for grant expenditures, the employment of properly qualified employees, and the assurance that internet portals and web sites are adequate and functional.

The NYCDOE disagreed with the recommendation regarding the requirement of employees to authorize payments to compare receiving reports to invoices prior to rendering payments to vendors.

The NYCDOE agreed with the remainder of the recommendations and have agreed to implement corrective action.

Total No. of Audits Presented to the Subcommittee

Total CAPs Received

Unsubmitted CAPs

Total Follow-Up Letter Sent

284

239

18

222

Total No. of Audits Identified by the Internal Audit Workgroup for Further Actions or Follow-Up

Total CAPs Received

Total No. of CAPs Adequately Addressing Findings and Recommendations

Total No. of CAPs Needing Further Actions of Follow-Ups

134

113

81

32