The George Junior Republic Union Free School District (District) was created in 1908 by order of the “District Superintendent.” The District’s facilities are located on the grounds of the William George Agency for Children, a private residential housing facility. The District provides educational services for the residents of the housing facility and about 20 students are bused to the facilities from area school districts.

The District is governed by the Board of Education (Board) which comprises seven members, two of which are appointed by the State Education Commissioner (Commissioner). Typically, residents of the geographic area that the district encompasses elect board members; in this District’s case, the Board of the William George Agency for Children appoints those board members who are not appointed by the Commissioner.  In addition, local residents do not vote on the District’s budget, and real property taxes do not fund its operations.  The District receives funds needed to meet expenditures from State aid and billings to their students' home school districts and/or counties of residency.  The State Education Department establishes, and the New York State Division of Budget approves, the rates that the District may bill to each district and/or county.  The Board is responsible for the general management and control of District finances and educational affairs and the Superintendent is the chief executive officer of the District. Generally, the Board meets quarterly to conduct District business.  The Superintendent, along with other administrative staff are responsible for the day-to-day management of the District under the direction of the Board.

As the District’s main purpose is to provide education to the residents of the Agency, there is a close business relationship between the District and the Agency.  Agency employees perform all of the business and financial functions for the District, with the exception of the recently appointed claims auditor, who is an independent contractor.

Scope and Objectives

During this audit, we examined the functions normally performed by a District Treasurer to ensure that District funds were disbursed in such a way to safeguard them from fraud, abuse, theft and professional misconduct. We also examined the procedures followed when processing claims for the period of July 1, 2005 through February 8, 2007.

The objectives of our audit were to address the following questions:

• Did the Board appoint a District Treasurer and was the cash disbursements function performed properly?

• Did the Board provide for the proper audit of claims?

• Did the Board adopt comprehensive network policies and procedures that require sufficient complexity of passwords and the changing of passwords on a periodic basis?

Audit Results

The Board did not appoint a Treasurer as required by Education Law.  As a result, various individuals at the District, employees of the Agency, or an outside vendor (Vendor) performed the treasury duties.  Of most concern, we found that the Vendor processed and signed payroll checks, on Vendor check stock, which District officials later distributed to employees. During our audit period, District officials allowed their payroll vendor to initiate 58 wire transfers from the general fund bank account representing $21,508 to cover billing charges. Our audit of 20 of these transfers did not reveal any discrepancies between amounts billed and amounts wired.  Each payroll period the Vendor initiates a wire transfer from the District’s trust and agency account to the Vendor’s bank account then produces District payroll checks drawn from the Vendor’s bank account.  We audited all 46 payrolls paid during our audit period and found that five of the transfers were less than the authorized amounts by $4,724.  District officials began corrective actions regarding this finding while we were on site, and as of March 2006, the Vendor can no longer initiate wire transfers.

The Board appointed a claims auditor in December of 2006   The District claims auditor did properly audit and approve claims prior to payment from December 2006 forward. However, we found no evidence that claims were audited prior to the appointment of the District’s claims auditor.  We reviewed 62 claims totaling over $599,000 to verify they were adequately supported, represented necessary obligations of the District, and approved prior to payment; we found no irregularities.

The Board has not adopted comprehensive network policies and procedures that require complex passwords to access the system nor are network users required to change passwords. Password complexity requirements are minimal.  There is no requirement to change passwords periodically.  Potentially, there is a high risk that user passwords could be discovered and used by unauthorized individuals to access sensitive and confidential data. 

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.