Nanuet Union Free School District

Internal Controls Over Payroll and Selected Financial Activities -
EXECUTIVE SUMMARY

The Nanuet Union Free 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 Assistant Superintendent of Business (Assistant Superintendent) is responsible for the District’s finances, accounting records, and reports, and also serves as the District’s purchasing agent. The Director of Facilities is in charge of maintaining school buildings and grounds. He supervises a staff of 44 custodians, maintenance workers, and groundskeepers and is responsible for assigning and approving all overtime in his department.

The District paid salaries, wages, and fringe benefits totaling approximately $25.5 million in the 2005-06 fiscal year and approximately $27.5 million in the 2006-07 fiscal year. This represents the most significant expenditure incurred by the District out of budgets of approximately $48.9 million and $53 million, respectively.

Scope and Objective

The objective of our audit was to determine if internal controls over payroll and selected financial activities were operating effectively for the period July 1, 2005 through June 30, 2007.1 Our audit addressed the following related question:

• Are internal controls over payroll, budgeting, and cash receipts and disbursements appropriately designed and operating effectively to adequately safeguard District assets?

Audit Results

District officials did not provide adequate oversight and monitoring of District operations, which resulted in questionable overtime costs and overpayments to employees. The District paid $941,747 for overtime during the audit period of which 98 percent was paid to employees within the Buildings and Grounds (Facilities) Department.

We examined timesheets and found excessive amounts of overtime claimed by employees. Two employees claimed 89½ and 90½ hours overtime in one week, and another employee claimed to have worked 27½ consecutive hours. Three individuals each received more overtime pay during the two-year audit period than their entire yearly salaries, including one employee who received $78,346 in overtime pay during the two-year audit period – amounting to 144 percent of his annual salary. District officials also inaccurately calculated snow emergency days and accrued compensatory leave which resulted in overpayment of $13,593 to Facilities workers.

The questionable overtime and erroneous payments made to employees resulted from inadequate review and monitoring of District payroll records by District officials. In addition, the Superintendent did not certify the payroll as required by District policy, and the duties of the senior payroll clerk were not adequately segregated. Our audit found no irregularities other than the erroneous and questionable overtime payments. However, the lack of adequate managerial oversight and the lack of segregation of duties increase the risk of undetected errors and irregularities, and place the District’s assets at an increased risk of loss, misuse, or abuse.

The Superintendent hired the Director of the District’s Family Resource Center (FRC) as an independent contractor. However, because of the Director’s responsibilities, she should have been classified as an employee. District officials also did not use the Request for Proposal (RFP) process to solicit competition, as required by District policy for services of more than $20,000, prior to hiring the Director as an independent contractor. Further, they did not perform a background check of the Director, who is in direct contact with students, as required by State law and the District’s employment policy. The failure of District officials to conduct a background check could have placed the welfare of the District’s students in jeopardy. (District officials have acknowledged this was an oversight and have begun processing the required background checks.) In addition, the Superintendent’s failure to classify the Director as an employee put the District at risk of possible Federal and State tax liabilities of up to $68,000.

District officials had not implemented adequate budgetary controls. The Assistant Superintendent, as purchasing agent, allowed purchases to be made without first encumbering the funds to make them available for the pending expenditure, ultimately overspending budgetary line items. Accordingly, the Assistant Superintendent made budget transfers of $2,368,701 at the end of the 2005-06 fiscal year without Board pre-approval to cover the accumulated budget deficits. District officials repeated this practice at the end of the 2006-07 fiscal year, transferring $1,093,500 to rectify deficit balances on budgetary line items incurred throughout the preceding year. The District’s practice of incurring liabilities without ensuring adequate funds and transferring budget funds without Board pre-approval places the District at significant risk of future deficit and diminishes the Board’s oversight of the District’s budget.

Lastly, there was inadequate segregation of duties related to the cash receipts and disbursements responsibilities of the Treasurer. Although we found no exceptions, the lack of segregation of duties and the lack of independent oversight as a mitigating control places the District at increased risk of errors or irregularities occurring and not being detected and corrected in a timely manner.

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 as specified in Appendix A, District officials generally agreed with our recommendations and have nitiated, or indicated they planned to initiate, corrective action. OSC comments on the District’s response can be found in Appendix B.
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