Horseheads Central School District Internal Controls Over Selected Financial Activities - Executive Summary

The Horseheads Central School District (District) is located in the Town of Horseheads, Chemung 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 seven schools in operation within the District, with approximately 4,300 students and 715 employees. The District’s budgeted expenditures for the 2005-06 fiscal year were $59.2 million, funded primarily with State aid, real property taxes and grants.

Scope and Objective

The objective of our audit was to examine the District’s internal controls over selected financial activities for the period December 1, 2004 to December 31, 2006. Our audit addressed the following related questions:

• Are internal controls over the rental of the Broad Street School adequately designed and operating effectively to obtain fair market value for the property rented?


• Are internal controls over travel-related expenditures adequately designed and operating effectively to ensure compliance with the District travel policy?
  
  
• Are internal controls over the claims audit function adequately designed and operating effectively to ensure that claims are audited prior to payment?
  
  
• Are Information Technology (IT) internal controls over the purchasing function adequately designed and operating effectively with respect to access rights and audit logs?

Audit Results

The District did not have adequate internal controls in place over the rental of the Broad Street School, travel related expenditures, claims auditing and purchasing IT.

In relation to the Broad Street School, the Board did not have policies and procedures in place to ensure that rental payments were equivalent to the fair market rental value, as required by statute. As a result, tenants who leased classrooms paid annual rental of about $3,000 per classroom per year during our audit period, whereas the District received $8,500 per classroom from one tenant during the 2002-03 fiscal year. Additionally, the individual designated by the Board to negotiate leases failed to publicly disclose her interest in lease agreements with one of the tenants. We noted that the cost of maintaining the Broad Street School exceeded rental revenues by about $15,000 during the 2004-05 fiscal year.

We also found that the District paid over $3,500 in conference expenses of two BOCES employees, and made payments for lodging expenses that exceeded amounts allowed by the District’s travel policy and related regulations by about $1,000. Further, the Board did not appoint the District’s claims auditors in accordance with good management practice and SED guidance, nor did the Board require the claims auditor to audit claims prior to payment and report directly to the Board. Lastly, we noted that the District did not fully utilize certain controls built into their accounting software package pertaining to access controls and audit logs.

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. Except at specified in Appendix A, District officials generally agreed with most of our recommendations and indicated that they planned to take necessary corrective action. Appendix B includes our comments on issues raised in the District’s response.

Complete Audit in PDF