July 30, 2008
DiNapoli Audit: Lax Management Oversight Led to $250,000 in Questionable Spending at Liverpool CSD
“There was a complete breakdown of financial controls at Liverpool Central School District,” said Dennis Tompkins spokesman for Comptroller DiNapoli. “That breakdown resulted in more than $250,000 in questionable spending. These are taxpayer dollars. Lax oversight is not acceptable. The present administration has begun to take steps to address this problem; that effort should be accelerated.”
Over a period of years, the district had a weak control environment which resulted in a questionable pattern of behavior on the part of district officials and lax controls over the use of taxpayer monies. Auditors identified a number of questionable transactions, including overpayments to the former superintendent, the circumventing of controls by the former superintendent in an effort to allow a board member to receive free health insurance benefits and the donation of district assets to outside organizations. The district’s lax controls over district assets resulted in over $250,000 in district moneys and equipment being used either inappropriately or irresponsibly.
The district did not have adequate internal controls in place to ensure that its officers and employees received compensation and benefits in accordance with the terms of their contractual agreements or board policies. As a result, the former superintendent was overpaid a total of $26,275 during the 2000-01 to 2002-03 fiscal years, and leave records were not available to support payments he received for unused leave totaling $67,790. In 2005-06, the superintendent approved payments totaling $15,000 into the tax shelter annuities of three employees without board authorization. In addition, the district did not properly bill a former board member for his health insurance coverage, resulting in the district incurring $44,283 in insurance costs without receiving reimbursement. When the board became aware of this matter, it initiated an investigation to look into it. The district stopped providing health insurance benefits to the board member in December 2005 and he resigned from the board in July 2006.
As part of the district’s student laptop computer program, the district provides each student participant in Grades 10 through 12 with a laptop computer. The district leases the laptops from Onondaga-Cortland-Madison BOCES (OCM BOCES) and then the student and his/her parent enter into an agreement to lease the laptop from the district. The district had weak management controls over its student laptop program which resulted in 32 laptops (costing about $38,400) that the district could not locate.
The district violated the State Constitution when it donated the proceeds from the sale of 28 new laptop computers to a nonprofit corporation. Cash and checks received from the sale of the laptops were not deposited into a district bank account or recorded in the district’s accounting records. Instead, the cash and checks were given directly to a nonprofit corporation. This circumvented the district’s regular disbursement procedures, entirely bypassing the claims audit and approval process.
During the 2004-05 fiscal year, various organizations, such as Parent Teachers Associations; non-profit community groups and extra-classroom activity groups, coordinated with the district and the Oswego and OCM BOCES to support various student activities covered by the district’s Arts In Education, Environmental Education and Planetarium agreements. These outside groups provided the district with funding for the activities. BOCES contracted with and paid the service providers (e.g. orchestra, ticket vendor), after which the district reimbursed BOCES the cost plus an administrative fee. The following year, the district received BOCES State aid to partially reimburse it for services purchased through BOCES. The district then reimbursed the outside organizations 46 percent of the costs they incurred to finance the activity. During the 2005-06 year, the district paid the organizations a total of $85,080. Although the community, student and parent organizations donated money to help the district fund programs in the arts and sciences, the district had no authority to pass the resulting State aid back to these organizations.
The Comptroller’s audit of extra-classroom activity funds disclosed that the district had several activities that were not run by students and therefore should not have been accounted for in the extra-classroom activity fund. The board did not receive useful reports to oversee extra-classroom activities, cash receipts were not always deposited timely and the district’s control system over cash receipts failed to detect the theft of monies on a timely basis.
The district paid $659,943 to one law firm for legal services during the 18-month audit period without entering into a written agreement, or soliciting written proposals as required by the district’s administrative memorandum. A written agreement with district officials helps clearly define for both parties the services that will be provided or the rate that will be charged. Additionally, when the district hires professionals with the benefit of RFP’s, the district can be more certain that it is securing the most economically beneficial and qualified service provider available.
Current district management has recognized the need for improving the district’s internal control environment. Steps have been taken to strengthen internal controls by establishing an Ethics Committee, adopting a new code of ethics, and a whistleblower policy and providing training on these policies to district administrators. In addition, district officials told auditors that the district has taken a number of other actions to help improve the district’s internal controls. For example, the district discontinued the use of general-purpose credit cards and it adopted a policy to restrict the use of district-owned cellular telephones. In December 2006, the superintendent issued written guidelines to district employees related to conference and travel expenses. The district also contracted with a CPA firm to review the activities of the extra-classroom activities fund in 2003, 2006 and 2007 and it has taken various actions over these years to remove non-student clubs from the fund.
The district has also addressed some findings in this report by phasing out the student laptop program, discontinuing the practice of funding various outside organizations, and establishing administrative regulations governing the operation of extra-classroom activities. The district also provided training to its administrators in June 2007 on the proper management of extra-classroom activities.
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. Except as stated in Appendix A, district officials generally agreed with our findings and recommendations, and indicated they will take, or have taken, corrective action. Appendix B contains OSC’s comments on issues raised in the district’s response.
Click here to view the audit.
School District Accountability