The Hudson City School District (District) is governed by the Board of Education (Board) which comprises seven 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.

The President of the Board is the chief fiscal officer of the District. The District has appointed a Business Manager and a Treasurer that are responsible for all cash receipts and disbursements. The Board has designated the Business Manager as the Purchasing Agent for the District. The Purchasing Agent is responsible for administering all purchasing activities according to Board policies and procedures.

The District was awarded a federal Community Service Grant Program (Grant) for the period April 2004 – September 2005, totaling $186,000. The Grant was designed to promote participation in structured community service programs for suspended students. The goals of the program are to provide opportunities for suspended students to engage in meaningful community service activities that create a personal connection between the student and the community which will create positive behavior changes while reducing the length of suspension.

The District’s inventory and capital assets represent a significant investment of resources. The District’s audited financial statements included equipment capital assets (ex., furniture, equipment, computers, musical instruments, and vehicles) with a total net value as of June 30, 2005 of approximately $246,000.

Scope and Objectives

The objectives of our audit were to evaluate the internal controls over the administration of the Community Service Grant Program for the period April 1, 2004 through September 30, 2005 and to evaluate the internal controls over the financial operations for the period July 1, 2004 through December 31, 2005. Our audit addressed the following related questions:

• Did the District implement appropriate internal controls over the administration of the grant, and are those controls operating effectively?
• Has the District established adequate internal controls over purchasing to protect against fraud,abuse and professional misconduct, and are those controls operating effectively?
• Has the District established adequate internal controls to protect capital assets and inventories against loss, waste and misuse, and are those controls operating effectively?
• Has the District established adequate internal controls over cash disbursements to protect against fraud, abuse and professional misconduct, and are those controls operating effectively?

Audit Results

We found that the District did not implement appropriate internal controls over the administration of the Community Service Program Grant. Inappropriate payments were made to a community member totaling $7,500, for activities not consistent with the original intentions set forth by the Grant. Also, approximately $50,000 in expenditures for which the District was reimbursed were not relevant to this Grant, and therefore should not have been submitted for reimbursement. Finally, we found that over $3,400 of equipment purchased with Grant funds was not in the possession of the District. Our findings related to the use of Grant funds have been referred to the Columbia County District Attorney.

The District has designed internal controls over purchasing; however they are not working effectively. We determined that 20 percent of vendors tested received payments totaling about $150,000 for goods and services that were not properly competitively bid in accordance with General Municipal Law, Section 103. Further, $114,800 was spent on insurance, without obtaining written or verbal quotes as required by the District’s procurement policy.

Internal controls relating to capital assets and inventories need improvement to better protect the District’s assets against theft and abuse. The District has not taken a physical inventory of their assets since April 1999. Further, they have also failed to update their records to include the purchase of 129 computers totaling about $93,000.

We also found internal control weaknesses relating to cash disbursements, specifically segregation of duties over the Treasurer’s duties, payroll disbursements and lack of an independent review of claims.

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 planned to initiate corrective action.

The Board has the responsibility to initiate corrective action. Pursuant to Section 35 of the General Municipal Law, the Board should prepare a plan of action that addresses the recommendations in this report and forward the plan to our office within 90 days. For guidance in preparing the plan of action, the Board may refer to applicable sections in the publication issued by the Office of the State Comptroller entitled Local Government Management Guide. We encourage the Board to make this plan available for public review in the District Clerk’s office.