FOR RELEASE:

Audit Details Chronically Lax Oversight by Board,
$6.4 Million in Questionable and Unauthorized Expenses
at William Floyd School District

Board Retroactively Approved Expenses Attempting to
Whitewash 9 Years of Inattention

State Comptroller auditors have identified $6.4 million in inappropriate and unapproved spending at the William Floyd school district, according to an audit released today by New York State Comptroller Alan G. Hevesi. This includes:

• $1.1 million in apparent misappropriations by district managers for their own personal benefit. For instance, the superintendent increased his salary and that of nine other district administrators without board approval. The superintendent also was improperly reimbursed for significant personal costs including those for political fundraisers and charitable contributions ― reimbursements not permitted under state law;
• $2.1 million of questionable or poorly controlled payments, including no-bid contracts and payments made without contracts; and
• $3.2 million for seven administrators’ contracts and salaries that were not approved in advance by the board.

This spending is in addition to the $1.5 million that former administrators last year pleaded guilty to stealing from the district. Although the spending identified in the audit occurred without prior school board approval over a nine-year period, the school board retroactively approved some of these questionable expenses in 2004 and 2005. The audit findings are being shared with Suffolk County District Attorney Thomas Spota, who joined Hevesi today at a press conference announcing the findings.

The audit details the chronically lax oversight by the board and a poor system of internal controls that failed to prevent widespread misappropriation of district funds. It covers the period of July 1, 2003 through June 30, 2005 and includes some expenses dating back to 1995.

“William Floyd school officials just don’t get it. While at least five school officials have been arrested and four have pleaded guilty to theft or official misconduct, other officials were taking money in ways that were clearly inappropriate, and millions were spent without proper controls. The William Floyd school board claims it approved much of this spending in secret meetings. There are no valid records of these approvals. There are no minutes or documents to prove that specific expenditures and policies were approved. After the revelations of criminal activity by district officials, the board met to ratify decisions made up to nine years before. There was no public discussion about the merits of each backdated approval or about the appropriateness of each expenditure. At the very least, such management is beyond irresponsible and demonstrates contempt for the district’s students, parents and taxpayers,” Hevesi said.

“As I’ve said repeatedly since we started our investigation a couple of years ago, someone in the school district must be held accountable for the theft of taxpayer money and sheer neglect that created the mess detailed in Comptroller Hevesi’s audit,” District Attorney Thomas J. Spota.

County Comptroller Joseph Sawicki, who assisted District Attorney Spota in the investigation of the William Floyd School District, said “These audit findings illustrate an outrageous abuse of taxpayer dollars. School district residents have a right to be irate over these revelations. This joint investigation by our three offices sends a message loud and clear that we will not tolerate such blatant misspending and waste of taxpayers’ money.”

The audit began in April 2005 following a request by Spota to the Comptroller’s office to audit the district’s finances. Spota began investigating the district in the spring of 2004 after allegations surfaced of financial wrongdoing by the former Treasurer James Wright. Since then, five district officials have been arrested, and two officials, Wright and Assistant Superintendent for Business Daniel Cifonelli, have pleaded guilty to stealing nearly $1.5 million. Two other employees, former Assistant Superintendent for Business Dennis Fidota and former Assistant Superintendent for Personnel and Administration Michael Schildkraut, pleaded guilty to official misconduct. Wright has repaid the district $538,089, and the district has recovered $120,000 from Cifonelli. In the audit released today, state auditors identified an additional $53,254 that Wright inappropriately paid himself, and another $24,150 in travel expenses that Cifonelli collected but was not entitled to.

The purpose of the audit was to determine if there was other improper use of funds and to identify what management weaknesses permitted school officials to steal and otherwise misuse funds.

In 2004 and 2005, the board retroactively approved $3.8 million in expenses that occurred as much as nine years before, from July 1995 to June 7, 2004, without the board’s prior review or approval. The backdated approvals were voted on without any public discussion as to why the board was ratifying these expenses or even what these expenses were for. “The blanket approval of these expenses, many of which auditors found questionable, demonstrated remarkably poor judgment and were violations of the most basic principles of open and transparent governance,” Hevesi said.

The $1.1 million in apparent misappropriations by district managers for their own personal benefit included:  

• Superintendent Overpaid by $159,931. Superintendent Richard Hawkins’ contract indicated that his annual salary would increase at the rate of the consumer price index (CPI). However, he received salary increases that exceeded the CPI by $159,931. Auditors found that Hawkins authorized the payroll department to increase his own salary without board approval. The board retroactively voted to approve some of his salary increases in June 2004 (See Attachments A and B).
• Superintendent Improperly Reimbursed for $57,933 of Personal Expenses. The district paid for $52,988 of the superintendent’s education expenses in June 2003, even though auditors found no authorization in the board minutes approving this payment. Hawkins was reimbursed $4,945 for golf outings, political fundraisers and charitable contributions ― some of which are prohibited under state law. Using public funds to make contributions to a political party is prohibited by the State Constitution. Some William Floyd administrators contribute to the William Floyd Scholarship Fund, but only Hawkins was reimbursed for his contributions of $100 a year for three years. (See Attachment C). The State Constitution prohibits the district from giving money to private entities. In addition to receiving $500 per month for transportation costs under his contract, he also used a district credit card to pay for gas. The board retroactively ratified the superintendent’s education expenses and gas card expenses in June 2004.
• Life Insurance Policies Worth $768,047 Inappropriately Transferred. Life insurance policies with a value of $768,047 were inappropriately transferred to six district employees, Hawkins, Cifonelli, Schildkraut, Wright, former Deputy Superintendent Paul Casciano and former Assistant Superintendent for Secondary Education Rocco DiNapoli, by Cifonelli in 1999 and 2000 without board authorization or any documentation to indicate why the policies were transferred. The board retroactively ratified the transfers to Hawkins, Casciano and Schildkraut in June 2004. The board did not give any rationale for this action or why it only approved the transfer for these three of the six administrators and not for Cifonelli, Wright and DiNapoli. Auditors found that this transfer was a bad deal for the taxpayers and should be reversed by the board as a matter of fairness.
• Unauthorized Salary Increases of $40,182. The superintendent directed the payroll department to increase nine administrators’ salaries by 3.6 percent, for a total of $40,182, without board approval (See Attachment B).
• Theft of District Funds Totaling $77,404. Wright inappropriately and illegally paid himself longevity and vacation time, made severance withdrawals in excess of his contract limits and overpaid himself for a termination payment, totaling $53,254. The district paid Cifonelli another $24,150 in travel expenses that he was not entitled to because he was retired from the district. Controls at the district were so bad that Wright was able to access key business office functions even after he was retired. In fact, he wrote $15,000 in district checks to himself after retirement (See Attachment A).

Among the $2.1 million in questionable or poorly controlled payments:

• Ineligible Contractor Improperly Hired for $834,920. The board contracted with Cifonelli, who had just retired from the district, to provide consulting services to the district. It appears that the board was aware that he was also collecting a pension from the New York State Teacher’s Retirement System, which was not allowed. Cifonelli was paid $834,920 for these services without a contract that stated what the services would be (See Attachment A).
• No-Bid Contracts, Overpayments and No Written Contracts Totaling $1.3 Million. The district issued no-bid contracts for trash removal, electrical repairs and paving services totaling $324,214, even though state law and the district’s procurement policies required competitive bidding. In addition, seven vendors were paid $940,451 without issuing requests for proposals and six of these vendors had no written contract. The district also overpaid these contractors by $16,972 (See Attachment A). When there is no competition, it is difficult to ensure that the public is receiving the best price and performance. When there is no written contract, it is difficult to ensure that the public is actually receiving the goods and services for which it is paying.
• Other Expenses. $10,000 was spent on district employees for lodging and meals in excess of federal per diem rates, and $5,000 was spent for state and local taxes because employees did not use tax exempt forms (See Attachment A).

Additional findings related to the $3.2 million for seven administrators’ salaries:

• Unauthorized Contracts. Between July 1995 and June 7, 2004, the district paid seven administrators a total of $3.2 million without board-approved contracts or salary increases. On June 7, 2004, the board retroactively approved five administrators’ contracts, but did not ratify the remaining contracts until March 18, 2005. These backdated approvals were made without any explanation or any public discussion of the merits.

The board has challenged the audit’s findings but notes that many of the auditors’ recommendations have been or will soon be implemented. The board’s full response is included in the final audit.

The following is our response to these issues raised by the board:

• Scope of the Audit. The board argues that the audit should have been an assessment of current financial practices, basically reviewing the board’s actions after the thefts were discovered. Auditors note that audits are designed to evaluate management in general, assess past actions and financial transactions of a district, and identify areas where improvements can be made. Four William Floyd officials have pleaded guilty to major crimes and another is pending, but until this audit there was no attempt to produce a final accounting of all the inappropriate activity. The public rightly expects an examination of everything that occurred and to ignore that would have been irresponsible. To follow the board’s suggestion would have resulted in a failure to expose all the inappropriate actions exposed by this audit.
• Actions Regarding Superintendent’s Pay Increases. The board claims it approved all raises for the superintendent in closed door executive sessions. It points to resolutions provided to auditors at the audit exit conference, supposedly from 1999 and 2000, showing that the board approved the superintendent’s salary increase and costs associated with obtaining his doctoral degree. Auditors note that these resolutions contained no details and refer to attachments that were not included as part of the board minutes. Nor were they stamped or attached to the superintendent’s contract. In addition, state law requires these kinds of decisions, such as voting to amend the superintendent’s contract, must be taken before the public, not in a closed session. Auditors note that the district’s own payroll records contradict the assertions of the board regarding the overpayment of the superintendent’s contract.
• Meetings with the Board and District Officials. The board asserts that auditors did not meet with board members, who could have told the auditors that they had approved all this spending in the undocumented private meetings.  Auditors note that even if they had interviewed every board member, the audits’ conclusions would not have been different. Professional audit standards would not allow auditors to base findings on the recollections of board members as to what they assert happened at closed door meetings. The board’s written minutes and accompanying resolutions are the official record of the actions taken by the board and are the basis for audit findings.
• Audit is a Personal Attack. The board argues that the report personally attacks the superintendent and contains inflammatory language. Auditors note that the audit was done in compliance with Generally Accepted Government Auditing Standards. The findings are not personal attacks but rather the auditors’ conclusions based on the facts the audit work uncovered.

“It appears that instead of trying to learn from this scandal, the board and district officials are only concerned with circling the wagons. The board provided no oversight and was negligent and wasted millions of dollars. The board’s response to the audit is an attempt to divert attention from the facts and avoid a full review. The William Floyd board remains deaf to the need for a new culture of openness and integrity to replace the culture of secrecy and corruption that has so far produced five indictments and the revelations made by our professional auditors,” Hevesi said.

Auditors note that since the wrongdoing surfaced, district officials have made several improvements to strengthen controls, such as segregating duties in the business office, ensuring that the board receives regular financial reports, and ensuring that the board reviews all payroll increases before they become effective. In its audit response, the board attached a plan detailing its action on the audit’s recommendations. The audit makes 35 recommendations to correct weaknesses in the district’s system of internal controls and other problems identified, including:

• Publicly approve all employment contracts with resolutions that contain specific terms and conditions of those contracts, prior to performing the services.
• Renegotiate the superintendent’s contract with a new contractual period.
• Pay the superintendent only in accordance with his contracted provisions. Any additional payments should be publicly authorized by the board.
• Pre-authorize the superintendent’s attendance and reimbursement for events.
• Publicly identify the reason why ratifying past actions are legal and necessary and in the best interests of the district.
• Recoup the value of life insurance assets from district officials.
• Before hiring a retired employee, first determine if it complies with retirement regulations.
• Enter into written agreements with all firms and individuals before any services are provided.
• Ensure that all employee benefits paid are in accordance with the terms of employment contracts.
• Recover additional overpayments made to Wright.
• Pass a resolution authorizing the superintendent to grant salary increases, if the board plans to delegate this responsibility.

The William Floyd school district, located in the Town of Brookhaven in Suffolk County, has 11,000 students, 1,500 employees and an operating budget of $165 million.

Attachment A: Misused and Poorly Controlled District Funds

Attachment B: Individuals Who Benefited From Misused and Poorly Controlled District Funds

Attachment C: Superintendent’s Expenses

Click here for a copy of the audit report.

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