Frontier Central School District

Internal Controls Over Personal Service Compensation and Benefits
Executive Summary

The Frontier Central School District (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 six schools in operation within the District, with approximately 5,400 students and 1,300 employees. The District's budgeted expenditures for the 2006-07 fiscal year were $62.4 million, funded primarily with State aid, sales tax, real property taxes, and grants. The District's 2005-06 fiscal year operating expenditures totaled $55.6 million for the general fund, $1.6 million for the School Food Service Program, and $2.7 million for the special aid fund.

Scope and Objective

The objective of our audit was to evaluate internal controls over employment compensation and benefits for the period July 1, 2005 through April 17, 2007. However, we expanded our scope back to October 2000 to review information pertinent to former administrators' employment contracts¹ and to July 1989 to review information pertinent to split-dollar life insurance policies. Our audit addressed the following related questions:

• Are internal controls for employee buy-back of leave time appropriately designed and operating effectively?
• Are internal controls for employee compensation and separation benefits, including split-dollar life insurance policies, appropriately designed and operating effectively?

Audit Results

We reviewed internal controls over separation compensation for two superintendents, two assistant superintendents, six teachers, and four support staff during our extended audit period. We found weaknesses in the controls and exceptions with the compensation for seven District employees, resulting in overpayments of $10,864.

We found that the minutes of the Board's proceedings did not clearly identify the Board's authorization of the terms of administrators' employment agreements. Board actions to authorize or modify these agreements were noted in the Board's minutes, but the minutes did not clearly stipulate the terms that the Board authorized. In many cases, the Board authorized modifications to the agreements, but it did not ensure that the formal amendments to the contracts or agreements actually occurred. The Board also increased the Interim Superintendent's weekly pay rate in an amendment to his employment contract, but it failed to include a change to his corresponding stipulated daily rate in the amendment.

The Board did not authorize or review a "merit pay" salary increase for a former Superintendent, which caused the District to overpay him by $3,111. It also did not amend the Superintendent's contract agreement as required to properly authorize his salary increases. The District paid the Interim Superintendent at a weekly rate even when he did not work the minimum number of days per week stipulated in his contract, resulting in an overpayment of $2,725. The District paid $1,931 to a former Assistant Superintendent for unused sick leave that he had not earned. In addition, the District improperly paid $2,222 to a management/confidential employee for unused leave time. Also, the District did not follow applicable collective bargaining agreements and other employment contracts when it made $875 in unauthorized credits for future health insurance coverage to a teacher.

The District purchased split-dollar life insurance policies in the amount of $150,000 each for five former administrators after they retired. However, the employment contracts for the five administrators called for the District to purchase policies in the amount of only $100,000 each. As a result, the District purchased these split-dollar life insurance policies for $50,000 more for each policy than was required by the employment contracts, which resulted in the District paying for $250,000 in unauthorized policy increases. Also, the District purchased a split-dollar life insurance policy in the amount of only $70,000 for one former administrator, though his employment contract called for the District to purchase a $100,000 policy.

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 plan to initiate corrective action. Appendix B includes our comments on an issue raised in the District's response letter.