The Somers Central School District (District) encompasses the Towns of Somers, Katonah and Yorktown Heights in Westchester County. The 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 for the daily operations of the District under the direction of the Board.

The District’s budgeted expenditures for the 2004-05 and 2005-06 fiscal years were approximately $58 million and $63 million, respectively, funded primarily by State aid, real property taxes and grants. Annual payroll for the 2004-05 and 2005-06 fiscal years were $33.2 million and $35.7 million, respectively.

The Board designated the Assistant Superintendent for Business as the District’s purchasing agent. Under the general supervision of the Superintendent, the purchasing agent is responsible for making all District purchases, with the exception of school lunches.

Scope and Objectives

We examined the District’s internal controls over payroll, purchasing, claims processing and information technology for the period July 1, 2004 to June 30, 2006 to determine if District officials were properly safeguarding their financial resources. Our audit addressed the following question:

• Were internal controls over District payroll,1 purchasing, claims processing and information technology appropriately designed and operating effectively?

Audit Results

We found instances in which the Board had not established adequate internal controls over payroll, purchasing, claims processing and information technology. These control weaknesses increased the risk that errors and/or irregularities could occur without detection. Despite weak controls, we did not find any systematic problem in the claims processing, purchasing, or payroll process.

The District hired a retired individual as a school monitor at $200 per day (which equates to $28.57 per hour) when the maximum rate for the title was $13.77 per hour according to the District’s collective bargaining agreement. Therefore, the District paid the individual $23,793 more than required for the period September 2000 through June 2001. The District subsequently changed the individual’s title to campus supervisor and classified him as an independent contractor. The District paid the individual a total of $325,853 for the services provided as a campus supervisor from September 2001 through June 2006. On July 1, 2006, the District renewed the contract for the 2006-07 fiscal year for $83,355. Based on the job description for the position, the individual is not an independent contractor. As a result, the District could be liable for payroll and federal withholding taxes on the $325,853 already paid to this individual, which could be as much as $135,229. In addition, the District could be liable for the 2006-07 fiscal year payroll and federal withholding taxes, which could amount to an additional $11,219.

General Municipal Law recommends written policies and procedures that include obtaining requests for proposals and qualifications for professional services when competitive bidding is not required. However, the District hired an athletic trainer as an independent contractor, and obtained auditing and legal services without requesting written proposals. From July 1, 2004 through June 30, 2006, the District paid a total of $203,413 for these services. As a result, the District cannot be certain that these services were obtained from the most economically beneficial and qualified providers available.

The District has also not adequately segregated duties in the claims auditing and purchasing functions and within the payroll processing function. The District has two payroll clerks who have full access to all functions of the payroll software, including adding new employees and changing salary rates. Furthermore, the individual who is responsible for making all school lunch purchases was also the District’s claims auditor. Although we did not find any irregularities in the claims auditing and purchasing functions or the payroll process, the lack of segregation of duties in these areas increases the risk that errors could occur and not be detected which could result in the misuse and loss of District assets.

Our review of the District’s automated financial system identified weaknesses in the system’s access and detection controls. Although passwords are used, we identified two payroll clerks who share their passwords. In addition, passwords were not required to be complex and did not contain alpha-numeric characters. These weaknesses expose the District to the risk of unauthorized users gaining access to its financial system without the knowledge of District officials.

District officials have been proactive in addressing many of the audit findings when we brought them to their attention. The District has adopted policies and implemented controls concerning information technology, hired an independent claims auditor, and have terminated the contract with the independent contractor.

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.