Fallsburg Central School District

Management of School District Operations - EXECUTIVE SUMMARY

The Fallsburg Central School District (District) is located in the Towns of Fallsburg, Mamakating and Thompson in Sullivan County and the Town of Wawarsing in Ulster County. The District is governed by the Board of Education (Board) which comprises nine 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.

There are two schools in operation within the District, with approximately 1,514 students and 263 employees. The District’s budgeted expenditures for the 2006-07 fiscal year are approximately $30.7 million, funded primarily with State aid, real property taxes and grants. District officials contacted us to request an investigation regarding potential financial improprieties that may have occurred and to strengthen the District’s financial structure.

Scope and Objective

The objective of our audit was to determine if internal controls over selected financial activities and assets were appropriately designed and operating effectively to adequately safeguard District assets for the period July 1, 2004 to May 8, 2006. We also examined various transactions involving the former Superintendent, and Gateway Learning, Inc, an educational contractor. In some instances, we reported on transactions, activities and control features for the period covering July 2003 to August 2006. Our audit addressed the following related questions:

• Did District personnel fully comply with Education Law and the Board’s adopted policy regarding Fingerprinting Prospective School Employees?
• Did the Board ensure that all District payments were appropriate?
• Did the Board ensure that payments for unused leave were proper?
• Did the Board provide sufficient controls to safeguard information technology (IT) operations?
• Did the Board provide for the proper segregation of the duties assigned in the District Business Office?
• Did the Board audit, or provide for the audit of, all District claims?

Audit Results

We found extensive problems with District operations, including not properly screening independent contractors who come into contact with students, overpayments to senior administrators and contractors, payments for personal expenses of employees and poor controls over the District’s financial systems.

District personnel, in at least two instances, did not comply with New York State statute and Board adopted policy regarding the fingerprint-driven background check of prospective school employees and contractors. As a result, the District engaged a contractor, who had been convicted of sexual battery after being originally charged with child molestation, to provide services involving contact with students, a violation of Education Law.

We found the Board did not establish and implement controls to ensure the Superintendent was paid in accordance with his Board-approved contract, and to prevent the Superintendent from initiating or allowing improper payments to himself or others. From July 1, 2003 through September 30, 2005, the District overpaid the former Superintendent $44,457. Other District employees were overpaid an aggregate of more than $10,000.

We also found the District’s security over their IT system lacked essential controls. We found that several users had unauthorized access to sensitive directories and files in the District’s system. The District then engaged a computer consulting firm to determine if an unauthorized user had breached the system and granted inappropriate elevations in users’ rights. However, because of the poor monitoring and tracking capabilities of the District’s system, the consultant was unable to determine that such a breach occurred. This clearly illustrates the risk that poor security poses to sensitive District information. In addition, District officials could not locate two laptop computers.

We found business office staff’s duties have not been properly segregated. The Treasurer has the sole ability to authorize, approve and initiate wire transfers for the District, without independent oversight. Although we found no discrepancies or inconsistencies during our testing due to this specific lack of internal control, this control weakness not only greatly increases the likelihood of errors and irregularities, but the possibility of fraud, misconduct and abuse as well.

There was no independent audit of claims. Although the Board appointed a claims auditor as of July 2006, the person appointed was not independent of the Business Office. However, as of January 2007, we found the Board did appoint a claims auditor who was not assigned any other business duties and reported to the Board the results of her audit. In addition, there is a general lack of specific policies in place providing clear guidance on what are acceptable, necessary and proper expenses of the District for staff or a claims auditor to follow. The failure to properly audit each and every claim against the District as required resulted in a serious violation of statutory, regulatory and “prudent management” requirements and put a very substantial amount of District moneys at risk.

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 findings and recommendations and indicated they have initiated, or plan to initiate, corrective action. Appendix B includes our comment on one issue raised in the District’s response.