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October 7, 2008

 

DiNapoli: Proper Oversight Could Have Prevented $500K in Overpayments to Employees at Niagara Falls CSD

Audit Identifies Significant Problems at the District

Inadequate controls over finances and failing to properly monitor operations led to significant problems at the Niagara Falls City School District including overpaying 272 employees more than $500,000 and inappropriately paying the superintendent a lump sum of $10,800, according to an audit released today by State Comptroller Thomas P. DiNapoli.

“The school district let taxpayers down,” DiNapoli said. “By failing to properly oversee financial operations, district officials excessively spent more than $500,000 of taxpayers’ money. District officials must take their financial responsibilities seriously to ensure they do not spend a dime more than is necessary.”

DiNapoli’s audit, covering the period July 2005 to December 2007, found the board did not provide critical internal control functions and did not monitor compliance with existing controls. For example, the district did not establish written policies and procedures for processing and disbursing payroll. As a result, the district overpaid 272 employees because it failed to recalculate their biweekly pay rates to account for the 2005-06 school year having 27 paydays. These overpayments totaled more than $500,000.

In addition, auditors found the superintendent failed to record when he used vacation time for 12 years, including several instances when he took trips to Florida. The district granted him 45 vacation days each year. The superintendent requested a lump sum payment for unused vacation days each year. Because he never recorded any vacation time, the district inappropriately paid him $10,800 for 21 vacation days during the 2004-05 school year alone. As such, there is a strong possibility the district made inappropriate lump sum payments to the superintendent for a number of other years.

Auditors also noted the superintendent’s contract was changed so he could receive lump sum payments for unused sick days. The superintendent received two checks totaling $147,532 since 2006 for unused sick leave and another payment is due in 2008. Additionally, the superintendent used his district credit card to pay for $2,200 in travel expenses that were related to his consulting work.

Auditors also discovered the district paid $543,000 to 12 individuals as independent contractors when they should have been treated and compensated as employees. Even though the district’s external auditors identified the error, the district did not correct it. When a district improperly classifies an individual as an independent contractor who is actually an employee, it could be held liable for employment taxes. In addition, the district incorrectly classified its assistant attorney as an employee when she was actually an independent contractor. This attorney has since had her Retirement System membership revoked by DiNapoli’s office.

Auditors also found the district:

  • improperly paid $24,615 to a former administrator for leave time she was not entitled to;
  • paid 12 employees a total of $17,500 for overtime and other benefits they were not entitled to;
  • used the same external auditor for 35 years, who failed to identify deficiencies in vital internal controls;
  • made 28 purchases totaling $186,000 without the benefit of competition;
  • regularly circumvented the purchase order process, which placed the district at risk for making unauthorized purchases and reduced officials’ budgetary control;
  • had systemic deficiencies in $514,160 worth of claims because the district’s claims auditor did not understand his role, duties or authority;
  • incurred $5,038 in credit card late fees because district employees did not promptly provide sufficient documentation; and
  • allowed individuals other than the designated card holder to make purchases with district credit cards.

The audit contains 33 recommendations for district officials, including to:

  • establish and perpetuate a strong control environment;
  • take an active role in managing district operations;
  • recover all improper salary and benefits payments made to current and former employees;
  • adopt comprehensive policies and establish adequate monitoring procedures to ensure employees are accurately paid;
  • ensure that employees accurately record leave usage; and
  • recover any inappropriate payments made to the superintendent for vacation time including the time that was actually used for trips to Florida.

The district has committed to implementing corrective action to address some of the concerns in the audit and has already started to recoup overpayments made to 272 staff members and the superintendent. The district’s full response is included in the audit.

Click here to view the audit.

School District Accountability
In order to improve accountability of the state’s schools, DiNapoli’s office will audit all of New York’s 834 school districts, Board of Cooperative Educational Services (BOCES) and charter schools by 2010. The State Comptroller’s office has completed 480 school audits and approximately 200 school audits are currently underway.

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