The Poughkeepsie City School District (District) is located in the City of Poughkeepsie, Dutchess County. The District is governed by the Board of Education (Board) which comprises five 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 District’s operating expenditures for the 2005-06 fiscal year were $64.6 million, funded primarily with State aid, real property taxes, and grants.

Scope and Objective

The objective of our audit was to determine if internal controls over selected financial activities were appropriately designed and operating effectively for the period July 1, 2004 to June 22, 2006. We also expanded our scope to include certain payroll-related agreements dating back to March 26, 2003. For professional services relating to the District’s $27 million capital project, we expanded our scope for some audit testing back to July 17, 2002. Our audit addressed the following related questions:

• Are personnel appointments properly authorized and supported in accordance with District policies?
  
  
• Are payments for longevity, leave, overtime, and other employee benefits made in accordance with employee contracts and Board policy?
  
  
• Are the appointments of and payments to consultants and to the Construction Manager for the District’s $27 million capital project properly approved and justified by the Board?

Audit Results

We found that the Board had not established internal controls over payroll and the procurement of professional services. Weaknesses in the District’s internal controls have resulted in errors or irregularities occurring and going undetected.

The District had a weak control environment. The Board approved transactions without asking appropriate questions and requiring appropriate supporting documentation. In the areas we reviewed the Board did not take any steps to ensure that activities were carried out in accordance with their own established policies. The former Superintendent used the Board’s lenient attitude towards internal controls to make decisions that may not have been in the best interest of the District. The Board’s lack of oversight caused many other errors and irregularities to occur and go undetected and uncorrected.

We question the integrity of the selection and hiring process for four administrative positions created by the former Superintendent. The Board appointed individuals to these positions, and paid them a total of $723,000 during our audit period, relying solely on the former Superintendent’s recommendation. He circumvented Board policy in making these recommendations. The Board eliminated these positions in the 2006-07 budget.

As a direct result of the former Superintendent’s ability to override controls, and/or based on recommendations made by him, over $539,000 in questionable expenditures were made by the District. Specifically, we found that the former Superintendent made various agreements with his administrators that were not approved by the Board. For example, one such agreement that authorized extra compensation payments resulted in $46,742 paid to ten administrators during our audit period. Under another agreement an administrator was paid $16,000 for longevity to which he was not entitled. We also note that two employees, including the former Superintendent, received over $15,000 in payments for personal business days when their respective contracts did not provide this benefit.

Other inappropriate payments, that were a result of the former Superintendent’s control overrides, included the payment of two retirement incentives totaling $104,883 that did not meet the stipulations set forth in employee contracts. Other questionable expenditures included the authorization to pay $21,768 in overtime to an employee working in a position created by the Superintendent. District officials were unable to provide adequate documentation to substantiate the work performed for the overtime paid to this employee.

We also found that the Board approved a payment to a consultant (construction manager) for additional construction management services totaling $224,867 after the former Superintendent indicated that a District employee approved the claim. Evidence obtained at the District revealed that the claim was not audited prior to the payment. A District employee conducted an analysis of the additional charges and noted substantial discrepancies in the claim. We also identified questionable payments totaling $110,094 to two other consultants, including $103,094 for web page design services for nearly two years, and $7,000 for a human resource study which was never provided to the District as required by the agreement.

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 have already initiated corrective action. Appendix B includes our comment on one issue raised in the District’s response letter.