The Jefferson-Lewis-Hamilton-Herkimer-Oneida Board of Cooperative Educational Services (BOCES) is an association of 18 component school districts governed by a nine member Board of Education (Board) which is elected by the boards of the component districts. The Board is responsible for the general management and control of the BOCES’s financial and educational affairs. The District Superintendent is the Chief Executive Officer of the BOCES and is responsible, along with other administrative staff, for the day-to-day management of the BOCES and for regional educational planning and coordination. By law, the District Superintendent is an employee of both the appointing BOCES and the New York State Education Department. As such, the District Superintendent works under the direction of both the Board and New York State Commissioner of Education.

Approximately 500 BOCES professional and support staff work at the two BOCES campuses and in school district classrooms and offices throughout the BOCES area. In addition, the BOCES intermittently employs other individuals in various temporary or occasional positions such as consultants, workshop presenters, and substitute staff. Payroll expenditures for the 21-month period July 1, 2004 to March 31, 2006 totaled $27.9 million.

The BOCES’ 2006-07 fiscal year budget of $40.2 million is funded primarily by charges to school districts for services and Federal and State grants/aid. The BOCES Business Office bills and collects most revenues, however some BOCES operating units charge other customers for services.

As of March 31, 2006, the BOCES equipment inventory included 3,546 items with an aggregate cost of $6.4 million. BOCES equipment includes computers, cameras and other technology items, and specialized tools and equipment used in vocational training and special education programs.

Scope and Objective

The objective of our audit was to evaluate the internal controls over selected BOCES financial functions and activities for the period July 1, 2004 to March 31, 2006. Our audit addressed the following related questions:

• Did the Board establish internal controls over payroll expenditures that were appropriately designed and operating effectively?
  
  
• Did the Board establish internal controls over cash receipts that were appropriately designed and operating effectively?
  
  
• Did the Board establish internal controls over equipment assets that were appropriately designed and operating effectively?

Audit Results

Our audit disclosed that the Board and BOCES management have not adequately overseen the system of internal controls over the BOCES’s payroll expenditures, cash receipts, or equipment inventories. BOCES officials did not design and document operating policies and procedures, formally delineate employee control duties and responsibilities, or monitor the control effectiveness of the practices implemented by lower level managers and staff. As a result, Business Office managers have developed some operating practices without adequate attention to fundamental internal control considerations.

Most significantly, two Business Office employees have unchecked control over sensitive transactions because their job duties are not properly segregated. One employee handles all payroll processing and disbursement duties and another handles all cash receipts collection and recording duties. Both these employees control all phases of the transactions they process, have access to the assets, and are not subject to supervisory review procedures that would prevent or detect errors or irregularities in their work. Furthermore, similar control deficiencies exist at the Continuing Education Office where one employee collects over $400,000 annually for adult tuition and maintains all tuition accounting records. This employee also performs her duties without any effective verification of the integrity of her work.

The District Superintendent told us that BOCES management had not evaluated the system of internal controls and was not aware of the control deficiencies we discovered. Although our testing found no significant errors or irregularities in the work of these employees, we concluded that BOCES resources are at risk of undetected loss.

The BOCES inappropriately made five payments to retiring employees, totaling over $7,500, for unused sick leave benefits that were not authorized under the specific terms of relevant labor agreements or by written Board policy. Four payments were inappropriate because employees did not comply with a contract requirement and one payment exceeded the maximum amount specified by Board policy.

While the Board adopted a policy requiring annual physical inventories of valuable equipment items, senior BOCES officials did not monitor inventory results and have not provided any guidance on using the inventory results to help ensure that assets are being safeguarded. Although the BOCES June 30, 2005 inventory report identified 485 missing items with an aggregate cost of $427,522, the assistant superintendent did not report these results to the Board or the District Superintendent and did not require staff to follow up on the missing items. The BOCES deleted 281 of the missing items costing $159,374 from the property record, without investigation, because they had been missing for two consecutive annual inventories. The Board was not informed about the write-off and potential loss of these items. Our testing located 33 of 40 missing items we sampled, indicating that the inventory results are not accurate.

Comments of BOCES Officials

The results of our audit and recommendations have been discussed with BOCES officials and their comments, which appear in Appendix A, have been considered in preparing this report. BOCES officials generally agreed with our recommendations and indicated they planned to initiate corrective action.