Oyster Bay - East Norwich Central School District

Internal Controls Over Financial Operations
Executive Summary

The Oyster Bay - East Norwich Central 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.

Responsibilities relating to the District’s finances, and accounting records and reports are largely those of the District’s Interim Assistant Superintendent for Business, who also acts as the purchasing agent and finance software administrator. The District’s budgeted expenditures for the 2005-06 fiscal year were $38.6 million, funded primarily with State aid, real property taxes and grants.

Scope and Objective

The objective of our audit was to examine internal controls over selected financial operations for the period July 1, 2005 to November 30, 2006. Our audit addressed the following related questions:

• Are the District’s procedures to encumber¹ available appropriations adequate?
• Did the Board establish proper procedures to safeguard computer data?

¹ Encumbrances are commitments related to unperformed executed contracts for goods and services.

Audit Results

District officials have manipulated the recording of encumbrances to mask their financial condition. We identified 66 purchase orders, totaling $886,420, that were created and encumbered in February and March 2006, for which no actual commitments existed. This appears to have been an attempt to hide excessive fund balances. As a result, the District was precluded from using additional fund balance to reduce the subsequent year’s tax levy.

In addition, the District did not establish policies and procedures to safeguard computer data. The Interim Assistant Superintendent for Business has administrator rights within the financial system. This enables her to create a new user, update the users’ access rights, and perform other administrative functions including management overrides. The Interim Assistant Superintendent for Business is also the purchasing agent for the District, and has the authority to sign purchase orders and the ability to create journal entries. As such, the Interim Assistant Superintendent could initiate and conceal inappropriate transactions. The lack of policies and procedures over users’ access increases the risk that District employees can change or destroy data without being detected. We found that the District has not established formal policies or procedures to address potential disasters. In the event of a disaster, District personnel have no guidelines or plan to follow to prevent the loss of equipment and data or data recovery procedures.

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 indicated in Appendix A, District officials generally agreed with our recommendations. Appendix B contains our comments on issues raised in the District’s response.