The North Babylon 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.

Scope and Objective

The objective of our audit was to examine the District’s financial condition as well as the internal controls over purchasing and payroll for the period July 1, 2004 to April 30, 2006 to determine if they were adequately designed and operating effectively. Our audit addressed the following related questions:

• Has the District taken adequate action to address the excessive fund balance in the general fund and to monitor revenues and expenditures?
  
  
• Are internal control policies and procedures over purchasing and payroll adequate to protect and account for District assets?

Audit Results

As a result of the underestimated projection of year-end unreserved fund balance at June 30, 2004, the District’s unreserved fund balance was more than twice the amount allowed by law. The excessive fund balance was caused by the failure of District officials to properly record $2.8 million in State aid when the 2003-04 financial statements were prepared. The aid was incorrectly recorded as revenue for the year ended June 30, 2005, which resulted in an excessive unreserved fund balance at June 30, 2005, therefore, the Board and the District taxpayers were not provided with an accurate picture of the District’s financial condition and the Board was unable to prepare an accurate 2004-05 and 2005-06 budget. The Board did not become aware of this excessive fund balance until after voters had approved the 2005-06 budget that cut programs. The additional fund balance was subsequently used to reduce the tax levy and increase the amount of money in various reserves.

We identified several weaknesses in District financial operations. The internal controls related to procurement were not operating effectively. We identified approximately $364,000 in contracts that were not publicly advertised for bid in accordance with law and District policy, including: the purchase and installation of a new boiler, security guard services, and the cleaning of block wall surfaces.

In addition, we reviewed contracts between the District and eight professional service providers who were paid $803,838 during the 2004-05 fiscal year and found that all eight contracts were awarded without the benefit of competition. Furthermore, three of the eight professionals, providing tutoring and therapy services, were paid $99,724 for those services prior to entering into written agreements with the District.

We also found that the District’s purchase order system is not operating effectively. We examined 38 claims for purchases totaling $238,201 paid during our audit period which required a purchase order. We found that 14 claims totaling $123,316 had purchase orders that were dated later than the related invoices. In addition, internal controls related to claims processing were also not operating effectively. Our examination of 47 claims paid between July 1, 2004 and April 30, 2006 disclosed that 24 payments, totaling $509,357, made from the capital projects fund, the cafeteria fund and the special aid fund were not audited prior to payment.

Finally, we noted weaknesses in the internal controls over payroll records and personnel files. Our audit disclosed that written policies and procedures had not been established for the payroll process. No one independent of payroll preparation verifies the accuracy of the payrolls. We also found that individual time records were not maintained properly which resulted in a lack of documentation to support and verify that all employees worked the hours for which they were paid. Personnel files do not contain the required documentation to verify and support the legitimacy of an employee. The personnel file for one employee, a security guard, did not contain the required proof of a fingerprint clearance.

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 indicated they planned to take corrective action. Appendix B includes our comments on the issues raised in the District’s response letter.

The Board has the responsibility to initiate corrective action. Pursuant to Section 35 of the General Municipal Law, Section 2116-a (3) (c) of the Education Law and Section 170.12 of the Regulations of the Commissioner of Education, the Board must approve a corrective action plan that addresses the findings in this report, forward the plan to our office within 90 days, forward a copy of the plan to the Commissioner of Education and make the plan available for public review in the District Clerk’s office. For guidance in preparing the plan of action, the Board should refer to applicable sections in the publication issued by the Office of the State Comptroller entitled Local Government Management Guide.