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

 

TO:

The Honorable the Members of the Board of Regents

Subcommittee on Audits

 

FROM:

Theresa E. Savo 

 

SUBJECT:

Board of Regents Oversight – Financial Accountability

 

DATE:

June 2, 2006

 

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.                  NYC Department of Education – Early Grade Class Size Reduction

2.                  Annual Report on the Activities of the Regents Subcommittee on Audits

3.                  Office of Audit Services Draft 2006-2008 Audit Plan

4.                  Completed Audits

 

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 

 

1.         NYC Department of Education – Early Grade Class Size Reduction – Department staff will brief the members on Department activities related to the Early Grade Class Size Reduction Program.

           

2.         Annual Report on the Activities of the Regents Subcommittee on Audits – Department staff will provide an overview of the key activities of the Subcommittee during the 2005-2006 year.  These activities assist the Board of Regents in carrying out its oversight responsibilities.

 

3.                  Office of Audit Services Draft 2006-2008 Audit Plan – Staff will provide an overview of the Office of Audit Services draft audit plan.  The Office prepares a two-year audit plan to define its priorities and activities.  Input from the Regents and Deputy Commissioners and information from our risk assessment were used to establish audit areas.  The presentation of the draft plan will provide members with the opportunity to comment on the plan before it is finalized.

 

4.         Completed Audits

            Reports are provided as follows:

 

            Office of the State Comptroller

            Reporting of Violent and Disruptive Incidents by Public Schools

            Audits of SUNY Campus Contracting Practices

            Budget Reviews at Beacon City SD and Fabius Pompey CSD

            Phoenix Central SD

            Franklin Central SD

            Cassadaga Valley Central SD

            Stockbridge Valley Central SD

            Sidney Central SD

 

Recommendation

 

For items one (NYC Department of Education – Early Grade Class Size Reduction), and three (Office of Audit Services Draft 2006-2008 Audit Plan), the advice and guidance of the Members of the Audit Subcommittee are sought.

 

For item two (Annual Report on the Activities of the Regents Subcommittee on Audits), it is recommended that the summary of the activities of the Subcommittee be presented to the full Board.  Also, the advice and guidance of the Members of the Audit Subcommittee are sought regarding topics for Subcommittee meetings in 2006-2007.

 

For item four (Completed Audits), no further action is recommended.

 

 

 

Timetable for Implementation

 

            N/A

 

The following materials are attached:

·              Roadmap

·              Minutes of the May Meeting (Attachment I)

·              Annual Report on the Activities of the Regents Subcommittee on Audits (Attachment II)

·              Audit Report Abstracts (Attachment III)

·              Audit Reports

 

REGENTS SUBCOMMITTEE ON AUDITS

MEETING ROADMAP

 

Date:  June 2006

Time:  TBD

Location:  TBD

TOPIC

OUTCOME

WHO

MINUTES

Opening Remarks

 

Chair

2

Review Agenda/Minutes (Attachment I)

Approval

Conway

1

NYC Department of Education – Early Grade Class Size Reduction

Update

EMSC Staff

15

Annual Report on the Activities of the Regents Subcommittee on Audits (Attachment II)

Update

Taylor

10

Office of Audit Services

Draft 2006-08 Audit Plan

Update

Conway

10

Audit Report Abstracts (Attachment III)

Questions Addressed

SED and OSC Staff

20

Next Session

Preview

Staff

2

 

Attachment I

 

MEETING OF THE REGENTS SUBCOMMITTEE ON AUDITS

May 22, 2006

 

Subcommittee Members in Attendance:

 

Regent Geraldine D. Chapey, Chair

Regent Joseph E. Bowman, Vice Chair

Regent John Brademas

 

 

Other Members of the Board of Regents in Attendance:

 

Regent Roger B. Tilles

 

Discussion Items

 

Regent Chapey opened the meeting by commenting on the increased interest in financial matters as exemplified by the inclusion of an item on the Regents 24 month calendar to develop a policy on financial management.

 

Department Internal Controls

 

The Department’s Internal Control Officer (ICO) briefed the Members of the Subcommittee on some important developments. The Commissioner recently signed the required annual internal control certification for the 2005-2006 State fiscal year. In addition, the Department will soon be issuing a revised Administrative Policy Manual which will guide staff behavior in some key areas and internal controls training is being developed for Department managers and staff. It is expected that managers will receive a classroom training session while the remaining staff may receive online training.  Regent Brademas asked the ICO if the Department had reached out to other states’ education departments to benchmark the process. It was learned that some states have been studied, but there has not been a comprehensive effort to do so. Regent Chapey asked that the ICO keep the Members of the Subcommittee informed as implementation of the training progresses.

 

Audit of the Roosevelt Union Free School District.

 

Department staff provided a brief summary of the results of the audit. The audit examined controls in the areas of governance and planning, accounting and reporting, revenue and cash management, purchasing and expenditures, facilities and equipment and, student services and student related data. The audit covered the period from July 1, 2003 to April 30, 2005 and contains 62 recommendations for improvements. Audit staff revisited the district prior to the issuance of the final audit report to determine the extent that District management had implemented the recommendations that were provided to them in a draft report. Office of Audit Services (OAS) staff determined that of the 62 recommendations contained in the report, the District had implemented 33 and partially implemented 6 of the recommendations.

 

The Regents expressed concern with the results of the audit and the need for additional oversight and communication.  Commissioner Mills stated that he will be appointing a fiscal administrator to oversee the district.

 

In response to a question on the extent of Department monitoring at Roosevelt, Deputy Commissioner Savo described the kind of ongoing Department oversight that takes place. There is a monthly meeting with the Roosevelt District involving senior Department staff and District staff. A consultant has been hired to assume the leadership duties in the finance office. The District is currently searching for a permanent business official.

 

Regent Chapey stated that the most significant question at this point is how to improve the situation. Regent Tilles suggested that one approach is to utilize some resources from USNY. In particular, he suggested that one of the schools of management at one of the colleges or universities located on Long Island could assist in the strengthening of business operations within the school district.

 

Regent Chapey asked that the Subcommittee be kept informed of progress. OAS staff will brief the members on the results of the 90-day follow-up process.

 

 NYC Department of Education – Efforts to Improve Fiscal Management

 

Staff from the Office of Elementary, Middle, Secondary and Continuing Education (EMSC) briefed the Subcommittee on Department actions taken to improve fiscal management including development of:

 

 

Among future activities that may help is the development of improved Department monitoring. Regent Chapey asked that EMSC staff return to update the Subcommittee on future actions. 

 

Audits

 

Staff was available to answer questions on the following audits:

 

            Office of Audit Services

·        Monroe 2-Orleans Report BOC-0805-1

 

            Office of the State Comptroller

·        NYC DOE Early Grade Class Size Reduction Report 2005-N-3

·        Controls over State Aid Processing Report 2006-F-3

·        Katonah-Lewisboro School District – Investigative Report

·        Catskill Central School District Report 2006M-1

·        Brentwood UFSD Report 2005M-71

·        Monroe-Woodbury CSD

·        Liberty CSD

·        Greater Amsterdam SD

·        Enlarged City School District of Troy

·        Schenectady City School District

·        Franklin Career Institute Report 2004-T-3

 

            NYC Department of Education

·        Summary of Findings of Internal Audits of the Department of Education for the City of New York Report 06-07

 

Miscellaneous

 

Regent Tilles asked that the Department consider developing guidance for school district officials on conflict of interest situations as well as fiscal irregularities. He also asked that any guidance developed include possible remedies the Board of Regents has in dealing with future instances of violations of the guidance. 

 

 

 

 

 

Attachment II

Report on the Regents Subcommittee on Audits

2005-2006

 

In accordance with its written charge, the Regents Subcommittee on Audits (Subcommittee) assisted the Board of Regents in carrying out its oversight responsibilities for audits, ethical issues arising from audits, internal controls, and compliance with laws and regulations.  The Subcommittee, which consists of five independent members, met eight times during the year.  A summary of key items presented at the meetings follows.

 

1.      The need for internal controls and fiscal accountability dominated the discussions in the Subcommittee meetings.  Members were provided with periodic updates on the status of the school district accountability regulations.  The Regents approved the regulations on an emergency basis in February 2006 and approved the regulations for final adoption in May 2006.

2.      A total of 57 audit reports were presented to the Subcommittee members for their review and comments.  These reports on school districts, BOCES, and Department programs identified 487 recommendations for improvements.  In almost all cases, the auditees agreed to implement the recommendations.  Members encouraged staff to make the results of the audits available to others.

3.      Members were informed of the process used by the Office of Audit Services to follow-up on the status of recommendations 90 days after the issuance of the final audit report. This process is designed to ensure action is taken on each of the recommendations. 

4.      Information was presented on the Department’s recently initiated Fraud, Waste, and Abuse hotline.  It provides an outlet for individuals to notify the Department of allegations of impropriety in USNY institutions.

5.      A KPMG partner presented information on the results of the audit of the financial statements of the State of New York and the specific activities related to the Department.  KPMG suggested that the Subcommittee members focus on the internal controls which lead to the development of the Department’s fiscal reports.

6.      The Department’s Director of the Bureau of Budget Coordination described the process used to prepare the Department's Monthly Fiscal Report. He also described the process to monitor the program offices’ fiscal status and to address any problems that are identified.  The Members requested that this information be shared with all members of the Board.

7.      Members were provided with an overview of the Department’s oversight activities related to the 400 non-degree granting proprietary schools that serve about 100,000 students. Department staff visit each school at least once every four years and also routinely visit schools to follow up on student complaints.  The Subcommittee members challenged staff to develop a risk-based approach to monitoring schools to supplement those identified by student complaints. 

8.      The Department’s Internal Control Officer (ICO) briefed the members on the annual certification process, the process used by offices to assess internal controls, plans to issue a revised Administrative Policy Manual, and the development of internal control training.  

9.      Members were provided with the opportunity to comment on the draft 2006-2008 Audit Plan.   The Plan calls for audits of school districts, BOCES, charter schools, and Department operations along with reviews of financial statements and Single Audit reports. 

 

Through these activities, the Subcommittee helped set the “tone at the top” for quality financial reporting, effective internal controls, safeguarding assets, compliance with laws and regulations, effective use of resources, and accomplishment of goals and objectives. 


Attachment III

 

Audit Report Abstracts

Regents Subcommittee on Audits

June 2006

 

Office of the State Comptroller

Audit

Major Finding

Recommendations/Response

Reporting of Violent and Disruptive Incidents by Public Schools

Report 2005-S-38

$0 adjustment

 

The auditors visited high schools and found that, at a majority of the schools, at least one-third of the violent and disruptive incidents docu-mented in the schools’ records were not reported to the State Education Department (SED). At several schools, more than 80 percent of the documented incidents were not reported to SED, and in a number of instances, the most serious type of incidents, such as sexual offenses and incidents involving the use of a weapon, were unreported.

 

The audit concluded that there is significant risk that the level of violence at other high schools across the State is similarly understated, and therefore, SED’s annual reports on school violence do not convey the full seriousness of the situation to the Governor, Legislature, and Board of Regents.

 

The report opined that incidents were not fully and accurately reported because the reporting guidelines were not always understood and accepted by school district officials.  The report also suggests that schools that are at risk of being designated as persistently dangerous may manipulate their reported data to avoid the designation, and SED has not instituted controls to prevent the manipulation.

14 recommendations

 

The report recommends that SED make site visits to selected schools, review some of the schools data to determine if they should have been classified as persistently dangerous, determine if software exists to ease classification and reporting, streamline the Incident Report, and remind schools the reports must be retained for six years.

 

The report also recommends SED develop a single uniform training program, and develop and implement procedures to enforce compliance with the requirement of superinten- dents’ certification of reports.

 

The report further recommends that SED develop more appropriate and compre-hensive procedures for the assessment of evidence presented by schools seeking to avoid being designated as persistently dangerous, require schools on the preliminary list to document any revisions, and verify the accuracy of data submitted by 14 schools that were removed from the list.

 

Finally, the report recommends SED require school districts to affirm they have given parents a choice of a different school, develop edit checks for data entered on the School Accountability Data System, and develop a fully automated incident reporting process that allows electronic submission.

 

SED officials agree with all of the recommendations and have already taken actions toward implementation.

Audit of SUNY Campus Contracting Practices - Report 2005-S-37

$0 adjustment

 

The audit found instances where contractual services were initiated prior to approval. In addition, the audit found that many of the advertisements prepared by the various campuses visited for the bidding and award of prospective contracts did not encourage participation by minority or women owned business enterprises (MWBE).

 

The audit also found lack of documentation of contract reporter ads and in another instance no evidence the appropriate number of bids was received.

4 recommendations

 

The report recommends that the SUNY administration formally remind the campus contract administrators that approval should be obtained prior to delivery of goods and services and of MWBE requirements.

 

The report also contains specific recommendations to the campuses visited to ensure proper planning so that approvals can be obtained and to ensure full compliance with Purchasing and Contracting policy.

 

SUNY officials agree with the recommendations and have taken actions to implement.

 

 

 

  

Examination of Tentative Budgets of the Beacon City School District and the Fabius-Pompey Central School District.

$0 adjustments

 

These audits were designed to answer two questions relative to the Districts' budgets for the 2006-2007 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 audits found both of the Districts’ revenue and ex-penditure projections to be reasonable and the budgets structurally balanced.

 

Fabius-Pompey estimated State aid to be at the level of the budget proposed by the State Legislature. Beacon estimated State aid at an amount lower than the amount proposed by the State Legislature.  The reports urge both Districts to monitor the State budget proceedings and to be prepared to take action if final State aid appropriations are known before the adoption of the Districts’ budgets.

1 recommendation to each district

 

The reports recommend each District prepare a corrective action plan to address the issue identified in the report.

Phoenix Central School District -

Internal Controls Over Financial Operations

Report 2006M-12

5th Judicial District

$0 adjustment

 

The audit found the assignment of job duties at the District did not provide adequate segregation of duties over financial transactions. For example, the treasurer had incompatible duties including receiving cash, entering receipt information into the accounting system, making bank deposits, preparing and posting journal entries, reconciling bank accounts and preparing and signing manual checks. In addition, the treasurer did not oversee the process whereby her signature is electronically applied to computer-generated checks and does not require the bank to return cancelled checks.

 

The internal claims auditor reported to the business administrator rather than directly to the Board. The internal claims auditor paid nine claims on the basis of a work order, fax, or photocopy; as a result a claim was paid twice.

 

Finally, District officials did not ensure that capital assets are protected from loss by adopting a capital asset policy, maintaining complete and accurate perpetual inventory records, conducting periodic inventories, and decaling or tagging all assets.

9 recommendations

 

The report recommends reassigning some financial duties to maintain adequate segregation, having the treasurer control her electronic signature, and requiring the bank to return cancelled checks.

 

The report also recommends having the internal claims auditor report to the Board, only paying claims based on an original invoice, and developing written policies for cell phone usage, travel, and meal reimbursement.

 

Finally, the report recommends the development of a com-prehensive capital asset policy, maintenance of complete capital asset records, and tagging district equipment.

 

District officials agree with the recommendations and have taken action to implement many. The District receives electronic check images in lieu of cancelled checks from its bank.

Franklin Central School District -

Internal Controls Over Financial Operations

Report 2006M-14

6th Judicial District

$0 adjustment

 

The audit found deficiencies in controls over capital assets. The Board had not adopted a written capital asset internal control policy, physical inventories were not being performed, some assets could not be located, records were inaccurate, and there was a lack of segregation of duties.

 

1 recommendation

 

The report recommends the Board adopt a written compre-hensive internal control policy to track and account for all capital asset acquisitions and dispositions.

 

District officials agree with the recommendation.

Cassadaga Valley Central School District – Claims Processing and Inventories

Report 2006M-16

8th Judicial District

$0 adjustment

 

The audit found that the Board did not adequately segregate the duties of the claims auditor from the business and purchasing function. For example, the high school principal, who is also one of the acting superintendents, serves as claims auditor.

 

Neither the cafeteria coor-dinator, nor the transportation supervisor maintained per-petual inventory records for gasoline and frozen meat.

6 recommendations

 

The report recommends the Board consider appointing a new claims auditor and establish written policy guidance for the claims auditor.  The report also recommends the claims auditor provide a signed warrant to the treasurer documenting that only the vendor claims he has approved are authorized for payment.

 

The report also recommends the maintenance of perpetual inventory records for gasoline, food, and other related items; the maintenance of complete and accurate production and mileage sheets; and the performance of periodic analytical reviews of the consumable inventory records.

 

District officials agree with the recommendations.

Stockbridge Valley Central School District - Internal Controls Over Treasury, Accounting and Claims Auditing Duties. Payroll and Capital Assets

Report 2006M-11

6th Judicial District

$0 adjustment

 

The audit found the assignment of job duties at the District does not provide for adequate segregation of duties over financial transactions. A BOCES employee performs incompatible duties including entering data into the financial system, preparing manual checks, and reconciling bank accounts.  The District’s internal claims auditor is also the tax collector and treasurer of student activity funds.

 

The audit found the treasurer does not directly oversee the process whereby her signature is electronically applied to District checks. Further the District is not fully utilizing the monitoring tools available through the accounting software.  Individual time records for cafeteria staff did not include daily time in and out, breaks, and total hours worked. A final review of payroll by someone inde-pendent of the process is not done.

 

Finally, inventory records were not up to date, periodic physical inventories are not conducted, and not all assets are tagged.

9 recommendations

 

The report recommends reassigning duties to ensure adequate segregation of duties, discontinuing the use of electronic signatures without the direct control by the treasurer, and improving oversight of financial activity by District staff and the internal claims auditor. The report also recommends improving payroll controls and the maintenance of appropriate inventory records.

 

District officials agree with the recommendations.  

Sidney Central School District – Internal Controls Over the District Treasurer Operations

Report 2006M-19

6th Judicial District

$0 adjustment

 

The audit found a lack of segregation of duties. The treasurer performs almost all accounting functions including recording disbursements, signing checks, reconciling bank accounts, and preparing journal entries. The per-formance of all these duties without compensating controls is a significant control weak-ness.

3 recommendations

 

The report recommends the Board evaluate the treasurer’s duties and reassign them or establish compensating con-trols. The report also recommends improving control over the use of the electronic signature. Finally, the report recommends the audit committee ensure all bank reconciliations are indepen-dently reviewed and journal entries approved.

 

District officials agree with the recommendations.