| Hopevale
Union Free School District
Independent Audit Services
- Introduction Background The District contacted our office concerning alleged financial improprieties committed by the former Business Manager, Kenneth Mangione. District officials suspended Mangione and referred the matter to the Erie County District Attorney. The District also hired its independent auditor, Fox and Company, LLP (Fox), to quantify the extent of the financial improprieties for insurance recovery purposes. The Board did not adequately segregate key business process functions; instead, it delegated all responsibility to the former Business Manager. Further, the Board did not establish sufficient mitigating controls to monitor Mangione’s activities. Because of these significant internal control weaknesses, Mangione was able to embezzle $108,650 by issuing himself an unauthorized vendor check, additional payroll checks, improperly increasing his salary and using District funds to pay for his personal tax liability. The Board of Education (Board) is ultimately responsible for safeguarding the District’s assets. The Board meets this responsibility by establishing internal controls designed to prevent or detect errors and irregularities. It is the Board’s duty to make certain that established controls are appropriately designed and operating effectively. Such controls provide the Board with reasonable assurance that the District’s assets are adequately safeguarded. The Board ensures the quality of its established controls through timely oversight of the District’s fiscal operations. One aspect of an effective system of internal controls is an annual audit performed by an independent certified public accountant (CPA).1 Such an audit can be an effective oversight tool for District managers by providing for the timely detection of errors or irregularities. The effectiveness of the annual independent audit as a control is dependent on the scope and quality of such an audit and the resultant communications to management. The scope and quality of this type of audit is governed by generally accepted government auditing standards (GAGAS).2 Such standards specify the appropriate qualifications and responsibilities of the professionals who will conduct the audit, the quality of the audit work to be performed, and the required communications to management. The CPA firm’s engagement letter3 to the Board should document the audit scope, applicable professional standards, and other audit engagement expectations. It is the Board’s responsibility, through its established policies and procedures, to ensure that it procures quality audit services. This responsibility is further defined in statute. General Municipal Law requires political subdivisions, including school districts, to adopt procurement policies and procedures. This statute requires that the District procure goods and services, which are not required by law to be competitively bid, in a manner that ensures the prudent and economical use of public moneys, in the best interests of the taxpayers. The stated purpose of the statute is to ensure that the District acquires goods and services of maximum quality, at the lowest possible cost under the circumstances, and to guard against favoritism, improvidence, extravagance, fraud, and corruption. Objectives The objectives of our audit were to determine the adequacy of existing practices for the procurement of audit services and the effectiveness of such audit services as a means for the timely detection of errors and irregularities. Our audit addressed the following questions:
Scope and Methodology We examined the District’s independent audit service for July 1, 2004 — June 30, 2005. We conducted our audit in accordance with generally accepted government auditing standards. More information on such standards and the methodology used in performing this audit are included in Appendix A and Appendix D of this report, respectively. Comments of District Officials and Corrective Action The results of our audit and recommendations have been discussed with District officials and their comments, which appear in Appendix C, have been considered in preparing this report. District officials generally agreed with our recommendations and indicated that they planned to initiate corrective action. The Board has the responsibility to initiate corrective action. Pursuant to Section 35 of the General Municipal Law, Section 2116-a (3)(c) of the Education Law and Section 170.12 of the Regulations of the Commissioner of Education, the Board must approve a corrective action plan that addresses the findings in this report, forward the plan to our office within 90 days, forward a copy of the plan to the Commissioner of Education, and make the plan available for public review in the District Clerk’s office. For guidance in preparing the plan of action, the Board should refer to applicable sections in the publication issued by the Office of the State Comptroller entitled Local Government Management Guide. 1 Education Law and the regulations of the Commissioner of Education require that a certified public accountant conduct an external audit, in accordance with generally accepted government auditing standards (GAGAS). Although required by legal statute, the District exercises its discretion in choosing a qualified independent auditor. The independent auditor issues an opinion on the District’s annual financial statements and its compliance with certain laws and regulations and issues a report on the District’s internal controls. The auditor also may issue reports related to federal award programs that the District administers. The report on the District’s financial statements must be filed with the New York State Education Department (SED) by October 15 each year. For the 2004-05 school year the filing deadline was October 30. |