Alden Central School District

Internal Controls Over Selected Financial Operations -
EXECUTIVE SUMMARY

The Alden Central School District (District) is governed by the Board of Education (Board) which comprises seven elected members. The Board is responsible for the general management and control of the District’s financial and educational affairs. The Superintendent of Schools (Superintendent) is the chief executive officer of the District and is responsible, along with other administrative staff, for the day-to-day management of the District under the direction of the Board.

Scope and Objective

The objective of our audit was to evaluate internal controls over selected financial operations for the period July 1, 2005 to May 22, 2007. Our audit addressed the following related questions:

• Did District officials establish procedures to help identify and prevent potential conflicts of interest?
• Has the Board exercised appropriate oversight and established controls to ensure that payroll and separation payments are accurate and supported?
• Are internal controls over claims processing appropriately designed and operating effectively?
• Are internal controls over contractual payments appropriately designed and operating effectively?

Audit Results

The Board has not established adequate procedures to help District officials identify and avoid conflicts of interest in violation of the General Municipal Law and the District’s Code of Ethics. We also found deficiencies with respect to payroll, claims processing and contractual payments.

We found that one Board member has a prohibited conflict of interest. The Board member owns a daycare corporation, which operates year round on the District campus. The Board member represented to examiners that the program had gross receipts of approximately $95,000 and $106,000 for the 2005-06 and 2006-07 fiscal years. As owner of the corporation, the Board member is deemed to have an interest in the corporation’s contracts. That interest is prohibited because this individual, as a member of the Board, had the power to approve the contract between the corporation and the District.

Further, certain provisions of the District’s contract with the Board member’s corporation are inconsistent with the terms under which another daycare provider uses District facilities. While the District does not charge the Board member’s corporation for its use of District facilities, the District does charge another daycare provider a $300 monthly rental fee for the use of District facilities.

Also, the Board did not consistently authorize salary, benefits and payments upon separation or enforce contract provisions, and continued to allow payments to be made prior to Board approval. Twenty employees were paid salaries totaling $941,778, five employees were paid stipends of $24,899 and four employees were paid health reimbursement arrangement (HRA) cash out payments of $15,292, all without contractual authorization, and frequently without prior Board approval as required. Further, seven employees received merit payments totaling $16,629 without documentation that they had met the terms and conditions of their contracts. We also found three employees that were paid $34,153 for unused leave time and/or longevity without contractual authorization and a fourth employee that was paid $7,426 pursuant to a settlement agreement that was not authorized by the Board. Finally, the gross wages on the former Superintendent’s W-2 form were understated by $9,649 due to a payment for unused HRA funds that was not included, as required.

We also found numerous deficiencies with the 54 claims totaling $101,838 that we reviewed. There was a general lack of documented supervisory approval for purchases, a lack of itemized documentation to support claims, and debit card purchases totaling $1,201 in the 2005-06 fiscal year were not reviewed by the claims auditor. Further, the claims auditor generally reviewed claims after the checks were already printed.

The District does not have Board-approved contracts on file for 16 vendors to stipulate services to be provided. These vendors received approximately $2.1 million during the fiscal year. Eleven vendors have no contracts and the remaining five have contracts signed by a District employee but not approved by the Board.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their comments, which appear in Appendix A, have been considered in preparing this report. District officials generally agreed with our recommendations and indicated that they are taking corrective action.