DiNapoli Audits Find Poor Oversight and
Lax Accounting Led to Theft at Hopevale
Former Business Manager Improperly Took $108,000 From School District
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Inadequately segregated financial duties and substandard accounting practices allowed the former business manager of the Hopevale Union Free School District to improperly pocket $108,650 from the district, according to two audits released today by State Comptroller Thomas P. DiNapoli.
“More than $100,000 of Hopevale taxpayers’ money was lost because fiscal monitoring responsibilities were ignored,” DiNapoli said. “School districts should have a system of checks and balances in place to monitor financial activities by segregating fiscal responsibilities among several people. Lax accounting practices and the lack of basic safeguards let systematic theft go undetected for years at Hopevale.”
School district officials requested an audit when they discovered some financial improprieties in their records and at Hopevale Inc., a private residential housing facility for the district’s students where Kenneth Mangione was also the business manager.
As a result, the State Comptroller’s office conducted two audits. The first audit examined how the business manager was able to improperly enrich himself with funds from the district by looking at the district’s fiscal oversight. The second audit focused on the effectiveness of the district’s independent audit services and how these services were procured.
Fiscal Oversight Findings
Auditors found that Mangione oversaw all of the district’s financial and business responsibilities by serving as the district’s business manager, treasurer, purchasing agent and the certifier of payroll. By granting one person so much power, there was no system of checks and balances in place to monitor how the district’s finances were handled. Subsequently, Mangione was able to misappropriate funds from 1999 to 2006.
Mangione employed a variety of methods to receive the funds, which included:
- paying himself an extra $86,081 by issuing additional payroll checks and improperly increasing his salary,
- using $14,484 in district funds to pay his personal income taxes and
- issuing a $1,500 unauthorized vendor check to himself.
Mangione was able to adjust his salary because the district’s computer information system could be overridden without supervisory approval or oversight. Mangione also altered his W-2s so they showed he was paid $31,999 less than he actually was.
In addition, Mangione reported that he was a full-time employee at the district and reported inflated salary figures to the New York State Retirement System to increase his pension. In actuality, Mangione was a part-time employee, which results in less service credit, and his inflated salary figures included funds he improperly took from the district.
The audit recommends the board and district:
- adopt policies that separate business functions;
- appoint someone to certify payroll who is not involved with preparing payroll;
- submit monthly and quarterly financial reports;
- obtain necessary board training regarding financial oversight; and
- limit override rights on its computer information systems.
Independent Audit Services Findings
The State Education Department (SED) requires that all school district annual audits comply with generally accepted government auditing standards (GAGAS). State auditors determined Fox & Company LLC, the district’s accounting firm for 20 years, did not conduct the district’s 2004-05 audit in compliance with GAGAS and performed work well below professional standards.
Auditors found the accounting firm failed to:
- perform an adequate assessment of fraud risk,
- test override controls,
- evaluate business rationale for unusual transactions and
- gain an understanding of internal controls for the district’s computer information technology.
The audit also found the district did not seek competitive proposals for its accounting services, using the same firm for 20 years. Recent statutory changes require school districts to go through a request for proposals process at least once every five years.
DiNapoli’s office referred the findings of this audit to SED’s Board of Public Accountancy. The district generally agreed with the findings of the audits and has committed to taking corrective action. The district’s responses are included in the audits.
To view the audits, click Fiscal Oversight audit or Independent Audit Services audit.
School District Accountability
State Comptroller Thomas P. DiNapoli requested and received an additional $2.7 million in 2007 to hire more staff to audit schools. The State Comptroller’s office must audit all of New York’s 832 school districts, Board of Cooperative Educational Services (BOCES) and charters schools by March 31, 2010. The State Comptroller’s office has completed more than 220 school audits with approximately 200 audits currently underway.