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January 5, 2010

DiNapoli’s Office Completes School Audits

New York State Comptroller Thomas P. DiNapoli today announced his office completed audits of Chenango Valley Central School District, Greater Southern Tier Board of Cooperative Educational Services, Kiryas Joel Union Free School District, Little Falls City School District, Long Beach Central School District, Palmyra-Macedon Central School District, Valley Stream Union Free School District #13 and Wayland-Cohocton Central School District.

“My office’s audits of school districts and BOCES help schools improve their financial management practices,” DiNapoli said. “These audits are tools for schools to make sure proper policies and procedures are in place to protect taxpayer dollars and provide students with the best possible education.”

Chenango Valley CSD – Financial Condition and Internal Controls Over Selected Financial Activities (Broome County)
Auditors found district management failed to set the proper “tone at the top” and contributed to the district’s financial decline. The board did not effectively monitor and control district finances or adopt realistic budgets, which resulted in an accumulated general fund deficit of $3.5 million as of June 2008. As a result, district officials obtained approval from the State Legislature and issued $3.5 million in deficit financing bonds. The deficit financing and operational changes allowed the district to complete the 2008-09 fiscal year with a surplus. Finally, the board appointed an employee of BOCES as the district’s claims auditor, which is against the State Education Department’s (SED) guidance.

Greater Southern Tier BOCES – Internal Controls Over Selected Financial Operations (Allegany, Chemung, Schuyler, Steuben and Tioga counties)
The audit found the board did not take an active role in managing and overseeing the BOCES’ operations. Specifically, seven of the 11 board members did not take the required fiscal oversight training within the first year of election. The audit committee did not meet their fiduciary responsibilities because they recommended the acceptance of inaccurate financial reports and did not ensure the implementation of all corrective action plans prepared by BOCES officials in response to various audits. As a result, the BOCES’ general fund liabilities were overstated by $3.2 million. In addition, liabilities in the special aid fund and trust and agency fund (T&A) were overstated by more than $1.5 million and $500,000, respectively. This resulted in a total overstatement of liabilities, including deferred revenues, of approximately $5.2 million. Auditors also found BOCES improperly accumulated moneys in the insurance reserve for unauthorized purposes. Finally, the BOCES’ controls over payroll were not appropriately designed or operating effectively.

Kiryas Joel UFSD – Internal Controls Over Selected Financial Activities (Orange County)
Auditors found the district’s board president and vice president also are officers of the board of directors of a not-for-profit corporation that entered into a lease agreement with the district for a school building. While district taxpayers approved the lease alternative and the payments are based on an independent appraisal of the fair rental value, if the district continues to make payments over the 30-year lease period, district taxpayers will be burdened with rent payments totaling approximately $38 million, assuming a three percent annual inflation rate, and would not own the building at the end of the lease period. If the district had obtained voter approval and financed the construction with serial bonds at an annual interest of six percent, the total cost of the building to district taxpayers would have been approximately $35 million – resulting in a savings of about $3 million over 30 years – and the district would own the building. The board’s procurement policy needs to be improved because it did not provide proper and detailed guidance for district employees when procuring goods and services. In addition, the district’s claims auditor did not report to the board as required by law and did not meet independence requirements established by Education Law. Finally, district officials failed to prepare and file the district’s annual financial report (ST-3 report) and annual audit report for the 2005-06, 2006-07 and 2007-08 fiscal years with SED and the Office of the State Comptroller on a timely basis.

Little Falls City SD – Internal Controls Over Cash Disbursements (Herkimer County)
The audit identified weaknesses in the internal controls over cash disbursements including a lack of segregation of duties for the treasurer/payroll clerk and the business manager, and a lack of policies and procedures for cash disbursements. As a result, bank accounts were not being properly reconciled because the treasurer/payroll clerk was able to misrepresent the outstanding check lists for bank reconciliations without the knowledge of the board, district officials, or the external certified public accountant. In addition, supporting records for time sheets were not required and supporting records were not used to verify the accuracy of the time reported as worked by substitute teachers and hourly employees. Furthermore, these employees were paid based on time sheets that reported the scheduled hours for the final three days of the payroll period, instead of actual hours worked, without a procedure to ensure that adjustments were made for subsequent absences or schedule changes. Based on the records provided, it appears that two employees were overpaid by a total of $1,419.

Long Beach CSD - Internal Controls Over Selected Financial Operations (Nassau County)
Auditors found the board did not establish written policies and procedures over the payroll or fringe benefits processes and failed to ensure that employees’ time and attendance records were properly maintained and that separation payments were properly calculated. As a result, errors in employees’ accrued leave balances occurred without detection and separation payments were incorrectly calculated and paid. For example, the accrual records of all seven administrators that auditors reviewed had inaccurate sick or vacation leave balances, which, if converted into cash payments, may result in the overpayment of $58,431 in benefits to some administrators and the underpayment of $7,678 to other administrators. In addition, the district’s purchasing policy did not require officials to solicit competitive proposals prior to issuing a contract with a professional service provider. The board also did not adopt written policies addressing electronic banking transactions and district officials did not develop specific written procedures for wire transfers. Finally, district officials did not develop comprehensive policies and procedures to protect critical financial data.

Palmyra-Macedon CSD – Internal Controls Over Selected Financial Operations (Ontario and Wayne counties)
The audit also found district officials improperly established a reserve in the district’s trust and agency fund for other post-employment benefits (OPEB) totaling nearly $6.8 million. School districts currently have no legal authority to maintain such a reserve. Also, the district lacked a long-term plan for the use of seven of the 10 reserves held in the general fund. Furthermore, five of these reserves were overfunded by approximately $2.5 million as of June 2008. In addition, the district potentially lost approximately $174,993 in Medicaid reimbursements for the period July 2006 to February 2008, because it lacked policies and procedures to define the responsibilities for data collection and documentation, and submitting Medicaid claims for reimbursement.

Valley Stream UFSD #13 – Internal Controls Over Selected Financial Operations (Nassau County)
Auditors found as of June 2008, the employee benefits accrued liability reserve was overfunded by $3.3 million. The district established this reserve without a board resolution. The district also used a total of more than $900,000 from this reserve in the 2003-04 and 2004-05 fiscal years for improper purposes. The board appointed a treasurer annually and referred to the treasurer being paid a “retainer,” rather than a salary, as would be the case generally with an officer. The manner in which the treasurer has been compensated indicates that the district treated the Treasurer as if she were an independent contractor. However, the treasurer’s responsibilities cannot be delegated to an independent contractor. The district’s procurement policy did not require using competition when obtaining professional services.

Wayland-Cohocton CSD – Financial Condition and Procurement (Livingston, Ontario and Steuben counties)
The audit found district officials consistently overestimated expenditures by a total of approximately $6.7 million for the past five years. As a result, the district had operating surpluses totaling $2.8 million in four of the last five years, and did not need to use the majority of the $2.7 million of fund balance which the board appropriated as a revenue source in the general fund budgets. Despite its budgetary surpluses, the district increased its real property tax levy by more than $1.8 million – a total of 38 percent - over the last five years. The district used its annual surpluses to increase various reserves and trust account balances. As of June 2009, the district reported nine general fund reserves with balances totaling $4.6 million. The district overfunded four reserves, which collectively totaled nearly $2.4 million, and used $60,000 from another reserve for an unauthorized purpose. In addition, the district maintained a debt service reserve of $4.2 million, much of which was not used to pay associated debt service payments. The district also maintained an unauthorized OPEB Reserve, with a balance of approximately $122,561, in the trust and agency fund. Finally, the district also needs to improve its procurement practices.

Click on the links above to view audits. If you have any questions or would like a comment from the Comptroller’s office regarding the audits above, please call the Press Office at 518-474-4015.

School District Accountability
In order to improve accountability of the state’s schools, DiNapoli’s office will audit all of New York’s school districts and Boards of Cooperative Educational Services by 2010. The State Comptroller’s office has completed 725 school audits and approximately six school audits are currently underway.


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