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

 

TO:

The Honorable the Members of the Board of Regents

Subcommittee on Audits

 

FROM:

Theresa E. Savo

SUBJECT:

Board of Regents Oversight – Financial Accountability

 

DATE:

April 26, 2005

 

STRATEGIC GOAL:

Goal 5

 

AUTHORIZATION(S):

 

 

Executive Summary

 

Issues for Discussion

 

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

 

1.                  Completed Audits

2.                  Financial Condition of Districts

3.                  Additional Guidance on Fiscal Accountability for Districts and CPAs

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

 

Reason(s) for Consideration

 

            Update on Activities

 

Proposed Handling

 

            Discussion and Guidance

 

Procedural History

 

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

 

Background Information 

 

            Completed Audits – Reports are provided on a district’s overpayment of health insurance for retirees, a district’s administrative costs, reviews of districts’ proposed budget, and an audit of tuition assistance payments to a college.

 

            Financial Condition of Districts – Information will be presented based on our review of the financial statements.

 

            Additional Guidance on Fiscal Accountability for Districts and CPAs – Documents on internal control practices, fraud risk indicators, non-audit services, and audit standards are being finalized with the Public School Accounting Committee of the NYS Society for Certified Public Accountants.  These documents will be provided to the Subcommittee Members.

 

            Status of Legislative Proposals to Improve Fiscal Accountability (Five-Point Plan) Both the Assembly and Senate have introduced legislation.  Key issues of the legislation will be discussed and Department staff will seek the Subcommittee Members’ input regarding the legislation and regulations.

 

Recommendation

 

            For items one through three, no further action is recommended.  For item four, a recommendation will be developed based on the Subcommittee’s discussion and input.

 

Timetable for Implementation

 

            To be developed.

 

The following materials are attached.

·              Roadmap

·              Minutes of March Meeting (Attachment I)

·              Audit Report Abstracts (Attachment II)

·              Audit Reports

 

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

 

Date:  May 17, 2005

Time:  8:00 a.m. - 9:00 a.m.

Location:  Rm. 311 EB

TOPIC

OUTCOME

WHO

MINUTES

Opening Remarks

 

Chair

2

Review Agenda/Minutes (Attachment I)

Approval

Abbott

1

Audit Report Abstracts (Attachment II)

Questions Addressed

SED and OSC Staff

10

Financial Condition of Districts

Update

Spring

10

Additional Guidance for Districts and CPAs

Update

Conway

10

Legislative Proposal Five-Point Plan

Update

Abbott

20

Current Issues

Update

Abbott

5

Next Session

Preview

Staff

2

 

Attachment I

 

MEETING OF THE REGENTS SUBCOMMITTEE ON AUDITS

March 15, 2005

 

Subcommittee Members in Attendance:

 

Regent Geraldine D. Chapey, Chair

Regent Arnold B. Gardner, Vice Chair

Regent Joseph E. Bowman

 

Other Members of the Board of Regents in Attendance:

 

Regent Milton L. Cofield

 

Discussion Items

 

Regent Chapey opened the meeting by welcoming everyone and reminding them of management’s responsibility in establishing fiscal accountability. She challenged all present to reach out to the managers of USNY institutions and encourage them to address their responsibilities related to fiscal accountability.

 

The Department, through the Regents Subcommittee on Audits, has taken steps to help managers address their responsibilities. The steps include:

 

·        Issuing the Statement on Governance and "Fiscal Fitness"

·        Developing a methodology to identify districts in fiscal stress

·        Participating in training for district officials

·        Summarizing key concepts contained in Sarbanes-Oxley

 

Previous Meeting Minutes

 

The Subcommittee approved the minutes of the prior meeting.

 

Audits

 

Staff was available to answer questions on the following audits:

 

An Assistant Comptroller and Audit Director from the Office of the State Comptroller briefed us on the massive misappropriation of funds at Roslyn. The report estimates the amount to be in excess of $11 million. The report also estimates that at least 29 individuals benefited.

 

The Subcommittee discussed what more could be done to prevent this from happening. The Commissioner joined the discussion and he urged us to move forward in providing specific guidance to certified public accountants in order to enhance the external audit process. This is one of the five points recommended by the Comptroller. Among the other actions discussed were:

 

 

The Committee discussed the accounting professions’ role in the Roslyn scandal. The Secretary of the State Board for Public Accountancy stated that his office issued a memo to all district auditors reminding them of their responsibility to be independent of the districts audited.  The State Board for Public Accountancy is also working with Counsel's Office to modify Regents Rules as they relate to notification of improper acts and violations of laws and rules.

 

Financial Analysis for the Office of Higher Education

 

Assistant Commissioner Joseph Frey attended the meeting and briefed the Subcommittee on Department activities to protect students enrolled in for-profit colleges and non-degree granting institutions.

Attachment II

 

Audit Report Abstracts

Regents Subcommittee on Audits

May 2005

 

Office of Audit Services

Audit

Major Finding

Recommendations/Response

Herricks Union Free School District

SD-0105-6

10th Judicial District

$69,870 overpayments

 

The District undercharged health insurance premiums for teachers and administrators who retired between July 1, 1999 and June 30, 2004. The contractual agreement with teachers required retirees to pay 15 percent of the cost of individual coverage for health insurance, with the District paying the remaining 85 percent. However, in practice, the District had been paying 95 percent with retirees paying the remaining 5 percent. As a result, the District overpaid premiums by $69,870.

 

The District is aggressively pursuing collection and, as of the date of the issuance of this report, has collected $31,264.

4 recommendations

 

The recommendations are for the District to continue to monitor collections until all monies have been received, to keep the Office of Audit Services apprised of the status of collections, to clarify the language of administrators’ contracts regard-ing health insurance premiums, and to implement an additional level of review of retiree billings for health insurance.

 

District officials agree with the findings and recommendations and have taken action to implement the necessary procedures.

Office of the State Comptroller

Audit

Major Finding

Recommendations/Response

Interboro Institute

2004-T-1

$903,150 overpayment

 

Interboro was overpaid $903,150 because school officials incorrectly certified 17 students as eligible for 27 TAP awards. The disallowance was based on finding students that were certified as eligible for TAP but were, in fact, not matriculated, not in good academic standing, not in full-time attendance, or had not met the residency requirements.

1 recommendation to the Department

 

The recommendation is to ensure Interboro officials comply with requirements relating to matricu-lation, good academic standing, full-time status, and admission tests.

Massapequa Union Free School District

S8-5-05

10th Judicial District

$0 adjustment

 

This was one of 16 audits conducted to determine whether District officials have established appropriate internal controls over expenses incurred on behalf of administrators and members of the Board of Education.  The audit found that there was little policy guidance from the Board regarding administrative expenses. However, except for the claims that did not show the business reason for providing meals and refreshments at meetings, the audit did not identify any significant exceptions with the District's administrative expenses.

 

The audit identified $60,050 expended at 552 meetings or events without documentation of who attended or the reason why refreshments were required. The District also spent about $20,400 for four credit cards. In 5 instances, the charges were not supported by a receipt or invoice and in 21 instances the invoices were not itemized. The District expended nearly $27,000 on travel.  In some cases, the official traveling did not obtain pre-approval as required by policy. Finally, the District did not have a policy on cell phone usage, although usage was monitored.

8 recommendations

 

One recommendation is for the District to monitor its recently adopted policies on meals and refreshments, and credit card and cell phone usage. Another recommendation is to document attendees at meetings where meals/refreshments are served and the reason why meals were required. The report also recommends that:  detailed receipts are reconciled to credit card statements, the internal claims auditor requires sufficient information to ensure compliance with policies, the Conference/ Business Travel Request form is modified and pre-approval is required, and the Board develops a more detailed travel-related expense policy.

 

District officials agreed with five of the recommendations. They believe the District already complies with the recommendation regarding monitor-ing new policies and the requirement for itemized receipts. Finally, they will refer the recommendation to changes to the internal claims process to their external auditors. 


Examination of Proposed Budgets of the:

·        Fabius-Pompey Central School District,

·        Monroe-Woodbury Central School District,

·        Roosevelt Union Free School District,

·        Schenectady City School District, and the

·        Enlarged City School District of Troy

$0 adjustment

 

These audits were designed to answer two questions relative to each district’s budget for the 2005-06 school year.

·        Are the District's significant revenue and expenditure projections in the proposed budget reasonable?

·        Is the District's budget structurally balanced so that recurring costs are financed with recurring revenues?

 

The audit found that the Fabius-Pompey budget was structurally balanced. However, the Board was not provided with timely, accurate updates on the results of operations. As a result, the Board could not initiate timely corrective action.

 

The audit found that the Monroe-Woodbury budget is reasonable and structurally balanced and the District's estimate of State aid is conservative. The audit urges the District to closely monitor State aid and be prepared to adjust the appropriation of fund balance if possible.

 

The audit found that the Roosevelt Union Free School District's budget was structurally balanced. However, the auditors recommend that the Board reconsider the amount of fund balance being appropriated in the 2005-06 budget. The report suggests that resolution of building aid, State aid, and principal and interest payments on serial bonds may impact the need to appropriate fund balance.

 

The audit found Schenectady’s budget to be structurally balanced.  The report cautions the District against using fund balance, which is a non-recurring revenue source, to fund operations. The report also recommends the District closely monitor the final State aid figure and take appropriate actions.

 

The audit found, except as noted below, Troy's budget to be structurally balanced.  The report found the District underestimated its Teacher Retirement System liability by $493,429 and recommends the appropriation be increased to an adequate level. The report also found the District underestimated State aid by about $1 million. Finally, the report cautions the District to monitor its year-end fund balance to ensure it does not exceed the 2 percent limit. 

1 recommendation to each district

 

The reports recommend each district to prepare a corrective action plan to address each issue identified.