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October 30, 2009



DiNapoli: Maine-Endwell School District Underestimated
Fund Balance and Reserves By $6.7 Million

Due to poor accounting, the Maine-Endwell Central School District underestimated its fund balance and reserves by $6.7 million – money that could have been used to lower taxes, according to an audit released by State Comptroller Thomas P. DiNapoli. In one instance, administrators believed they had approximately $1.6 million of unreserved fund balance in the general fund by June 2008 when, in fact, they had more than $5.3 million.

“School district officials need to watch every tax dollar no matter what the financial climate is, but especially during tough times,” said DiNapoli. “There’s a big difference between $1.6 million and $5.3 million. It’s hard to fathom how a district could have all that money in the bank and not know how much was there. This is not the time to lose track of millions of taxpayer dollars, especially when those dollars could have been used to lower taxes.”

The district also had a balance of nearly $1 million in the unemployment insurance reserve, which was sufficient to pay for 100 years of the district’s average unemployment claims. Moreover, instead of using the reserve or their employee benefit accrued liability reserve (EBALR) funds for appropriate expenditures, the district raised taxes to fund these expenditures

The audit found financial controls were also weak. For example, the same person controlled virtually all phases of cash transactions, creating the possibility of loss or theft of district moneys. The treasurer’s computerized signature and manual checks were also not secure, making them vulnerable to unauthorized use. Furthermore, conditions made it difficult to identify the responsible person if there had been any misappropriations.

Among the audit’s other findings:

  • The district paid $37,000 in pay health insurance premiums for two retirees who were deceased. After DiNapoli’s auditors brought this to the district’s attention, officials removed these names from the insurance policy and the insurance carrier provided a credit for the overpayments;
  • A claims auditor was involved in the purchasing process – having input purchase requisitions for $292,000 in purchases that she also audited. Although DiNapoli’s auditors did not find any discrepancies, there was a risk that inappropriate purchases could have been made because the same person was auditing the same purchases; and
  • The district’s computer systems and data were vulnerable to damage or misuse, and there was no formal data disaster recovery and district-wide security plan.

DiNapoli recommended that school officials:

  • Use the surplus fund balance DiNapoli’s auditors identified to the taxpayers’ benefit. Such uses could include:
    • increasing necessary reserves
    • paying off debt
    • financing one-time expenditures
    • reducing district property taxes;
  • Transfer excess reserve funds to district operating funds or to other legal reserves;
  • Ensure there is adequate segregation of duties over the recording, depositing, and reconciling functions in the cash receipts process;
  • Establish a system that accounts for all manual checks that are signed and issued;
  • Ensure the claims auditor is not also the requisitioning agent, as per State Education Department guidelines; and
  • Develop a comprehensive computer data disaster recovery plan.

School district officials generally agreed with DiNapoli’s findings and indicated they would take corrective action.

To view the audit, visit: http://www.osc.state.ny.us/localgov/audits/schools/2009/maine_endwell.pdf.

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 665 school audits and approximately 60 school audits are currently underway.

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