The Livingston Manor School District (District) is located in Sullivan, Ulster and Delaware Counties. The Board of Education (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.

All cash receipts and disbursements, including payroll, are handled in the business office. The total amount of cash or checks that were received by the business office in the 2004-05 fiscal year was in excess of $2,000,000. Payroll and fringe benefits represent a significant portion of the District’s annual budget. In the 2005-06 fiscal year, these expenditures amounted to almost $5.4 million for the 125 employees. The District’s audited financial statements included capital assets (e.g., furniture, equipment, and computers) with a total value on June 30, 2005 of about $10.4 million.

Scope and Objective

The objective of this audit was to determine if District officials were properly safeguarding their financial resources for the period July 1, 2004 to March 31, 2006. We also reviewed the former Superintendent’s contract and extended the scope of our audit back to July 1, 2002. Our audit addressed the following related questions:

• Did the Board implement adequate internal control policies and procedures to protect and account for District assets?
  
• Did the Board exercise its oversight responsibilities to ensure that its policies and procedures were operating effectively?

Audit Results

We found instances where the District had either not established critical internal controls or had implemented controls that were improperly designed or operating ineffectively.

We noted questionable payments to the former Superintendent and former Buildings and Grounds Superintendent for improper expense reimbursements and a questionable increase in base salary.

There is a lack of segregation of duties over the key aspects of the District’s payroll function. For instance, the payroll clerk has the ability to create new employees, input salary detail, process the payroll, and distribute the paychecks. Our testing revealed six employees that were added to the payroll without Board approval.

The District also lacks segregation of duties over the cash receipts process. The Business Office Manager is directly responsible for collecting and depositing cash, recording cash receipts in the accounting records, and reconciling the bank accounts. All of these duties are incompatible when they are performed by one individual.

Lastly, District officials did not ensure that capital assets are protected from loss by conducting periodic physical inventories, and positively identifying assets on the capital asset list. Our audit of capital assets revealed that of the 55 assets tested, none were tagged.

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 they planned to initiate corrective action. Appendix B includes OSC comments on three issues raised in the District’s response letter.