New York State Comptroller Thomas P. DiNapoli today announced his office completed audits of the Baldwinsville Central School District, Chenango Valley Central School District, Downsville Central School District, East Williston Union Free School District, Extra-Classroom Activities, Greenwich Central School District, Hauppauge Union Free School District, Long Lake Central School District, Northeastern Clinton Central School District, Oxford Academy and Central School District, Prattsburgh Central School District, Rush-Henrietta Central School District, Sauquoit Valley Central School District, Sharon Springs Central School District and the South Mountain Hickory Common School District.
State Comptroller DiNapoli has made it a priority to audit school district and charter school finances and operations to ensure money is being spent appropriately and effectively. The Comptroller’s audits are designed to help schools improve their financial management practices and ensure proper policies and procedures are in place to protect taxpayer dollars from waste, fraud and abuse. New York’s school districts annually spend approximately $60 billion in federal, state and local funds.
For additional background or a comment on a specific audit, please contact Brian Butry at 518-474-4015 or email: [email protected].
The board and district officials did not develop reasonable budgets or effectively manage the district’s financial condition to ensure that the general fund’s unrestricted fund balance was within the statutory limit. From fiscal years 2011-12 through 2014-15, the district improperly calculated its unrestricted fund balance and spent nearly $23.8 million (93 percent) less of appropriated fund balance and reserves than were budgeted to finance operations. As a result, the district’s recalculated year-end unrestricted fund balance averaged about 9.4 percent of the next year’s budgetary appropriations over the last four years, which is more than two times the statutory limit.
At the time of the audit, the district had an ongoing capital project which involved constructing, renovating and improving all three school buildings and the bus garage. The project was approved in December 2014 with a total budget of $12.4 million. The district engaged various consultants to facilitate the project and overall, officials properly managed Phase I of the project. The board presented the project to district residents in a transparent manner.
The board and district officials did not maintain reasonable fund balance. The district’s unrestricted fund balance totaled over $1.1 million, exceeding the 4 percent statutory limit by 7.3 percentage points. With the inclusion of the unused appropriated fund balance, the fund balance ranged from 12.1 to 14.7 percent of the ensuing year’s appropriations. In addition, the district had a reserve fund that was overfunded by $703,000 and appropriations were overestimated by $2 million in total, or an average of 6.9 percent per year, from 2012-13 through 2014-15. District officials also overestimated health insurance, contractual special education and certain teachers’ salaries instead of relying on historical information. These budgeting practices made it appear that the district needed to both raise taxes and use fund balance to close projected budget gaps. However, there were operating surpluses in two of the three years reviewed.
District officials did not ensure that the cash receipts process for extra classroom activities (ECA) funds were administered in accordance with guidelines. Bank deposit slips are usually not prepared by the ECA clubs as required by the district’s written guidelines. Instead, they are prepared by the central treasurer who also deposits the funds in the bank. Additionally, the central treasurer did not issue pre-numbered duplicate receipts for all funds placed in her custody, funds are not always deposited timely and bank deposit slips are not always prepared by the ECA clubs.
Auditors examined the Deposit, Dryden, Greene, Ithaca, Laurens and Livingston Manor Central School Districts and found that although boards had either adopted or implemented policies, they did not ensure that policies were being followed or that procedures were adequate to ensure cash receipts and disbursements were properly accounted for. As a result, student activity treasurers and/or faculty advisors lacked appropriate recordkeeping measures. Of the 442 cash receipts totaling $299,000 reviewed by auditors, 158 receipts totaling $113,800 were unsupported and 193 receipts totaling $164,400 were submitted to the treasurer either untimely or inadequately recorded. District officials also lacked effective oversight of the activity funds’ disbursements. Of the 330 disbursements totaling $281,000, auditors found 72 disbursement totaling $64,000, or 23 percent, lacked appropriate support.
The district needs to improve its claims auditing process to ensure that all claims have been audited and approved by the claims auditor before payment is made. The claims auditor did not consistently audit all claims related to the capital fund prior to payment. During the audit period, the district paid 3,282 claims totaling about $40.3 million. 151 claims were reviewed, totaling approximately $4.2 million (110 randomly selected claims totaling $1.7 million and 41 judgmentally selected claims totaling $2.5 million) to determine whether the claim packets contained sufficient documentation and were properly authorized prior to payment, itemized and for valid district purposes. Auditors generally found that these claims were adequately documented, supported and for valid district purposes. Of the 41 claims selected, auditors found that 37 totaling approximately $2.5 million were paid prior to being audited.
District officials are not properly monitoring employee overtime to ensure that the district is incurring only necessary overtime costs. While the district’s payroll instructions state that employees must obtain supervisory approval before working overtime hours, the district does not have adequate procedures in place to ensure overtime is preapproved. The district paid $470,355 for overtime and of this total, the district paid $363,482 (77 percent) of the overtime costs to personnel in the building and grounds department and security office. Auditors randomly selected two bi-weekly November 2014 payrolls in which employees worked 196.75 overtime hours and received overtime payments totaling $8,371 and found that none of the overtime hours worked had been preapproved. Had overtime preapproval been mandated, overtime would have been more closely monitored and shifts may have been rearranged.
District officials did not establish adequate procedures for processing payroll. The school business official’s duties were not adequately segregated because she was responsible for collecting employees’ time records; recording the hours worked or salaries to be paid; making changes to employees’ pay rates, withholdings and deductions; performing transfers between the district’s bank accounts for payroll purposes and preparing and executing the employees’ direct deposits. The school business official performed all of these duties without sufficient oversight. The district treasurer’s limited role related to processing payroll did not provide sufficient oversight of the business official’s work to mitigate the risks incurred due to her incompatible duties. The superintendent’s reviews were not adequate because he did not compare payroll registers to payroll source documents to ensure that payments were based on the actual hours or days worked and board-authorized hourly rates or annual salaries.
During the 2014-15 fiscal year, the board outsourced the district’s payroll function to the Franklin-Essex-Hamilton Board of Cooperative Educational Services (BOCES). However, the district’s procedures for day-to-day payroll processing did not clearly define the respective payroll responsibilities of BOCES and the district. For example, the district relied on BOCES to monitor the provisions of the collective bargaining agreements (CBAs) and employment contracts, with limited oversight from district officials. Due to the complexity of the CBAs and contracts, the BOCES payroll clerk was not always aware of all applicable payroll provisions. As a result, three employees were overpaid by a combined total of $9,630 and one employee was underpaid by $551.
The board and district officials did not ensure that the unrestricted fund balance and the capital reserve fund balance were reasonable. The district’s unrestricted fund balance totaled more than $1.4 million and was 7.5 percent of the 2015-16 budgeted appropriations, exceeding the statutory limit by 3.5 percentage points. District officials also appropriated a combined total of approximately $1.7 million of fund balance as a financing source in the annual budgets from 2011-12 through 2015-16, but the district’s operations did not always use the fund balance and instead generated operating surpluses totaling approximately $745,000 during this period. When adding back the unused appropriated fund balance during this period, the district’s unrestricted fund balance further exceeded the statutory limit ranging from 6.7 percent to a projected 9.6 percent of the ensuing year’s appropriations.
The board is required to deliver to the tax collector a school tax roll together with a warrant authorizing the collection of taxes prior to the start of the collection process. If any taxes remain unpaid at the end of the collection period, the tax collector is required to return the school tax roll and warrant to the board, along with a statement of the unpaid taxes and description of the properties on which the taxes remain unpaid. The 2015-16 tax collection totaled approximately $2.65 million and auditors found that the board did not provide the tax collector with a warrant prior to the start of the tax collection process. However, the tax collector received, recorded and provided the taxes collected for deposit in accordance with the district’s approved budget and tax worksheet prepared by the superintendent.
Rush-Henrietta Central School District – Financial Management and Separation Payments (Monroe County)
The board did not adopt realistic budgets based on historical or known trends. The board underestimated non-property tax revenues and overestimated expenditures for total budget variances of more than $35 million. The board-adopted budgets generated operating surpluses totaling more than $20 million over these three years. As a result, the total $14.9 million in appropriated fund balance and reserves was not needed or used to fund operations. District officials also made unbudgeted interfund transfers totaling $38 million from the capital reserves (reported in the general fund) to the capital projects fund and also made unbudgeted transfers to the district’s reserves. Along with the budgeted appropriation of fund balance that has not been used, this has reduced reported year-end fund balance to within the 4 percent legal limit. When the unused appropriated fund balance is added back, the recalculated unrestricted fund balance ranged from 5.9 to 6.6 percent of the ensuing year’s budget, exceeding the statutory limit in each year
District officials have not developed a long-term financial plan to maintain financial stability. The district has experienced operating deficits totaling $686,600 from the 2012-13 through the 2014-15 fiscal years. While the district did not use as much fund balance as planned in these years, the continued use of fund balance to finance operations is not a long-term solution. Furthermore, the district has one reserve with less than $5,000 and unrestricted fund balance is less than 2 percent of the 2015-16 budgeted appropriations. Auditors project the district will experience an operating deficit of approximately $200,000 for the 2015-16 fiscal year.
The board appropriated more fund balance than needed, which artificially lowered the percentage to within the 4 percent statutory limit. Instead of having operating deficits totaling $2.9 million as planned, the district’s net result of operations for the three-year period was a surplus of approximately $19,000. With the inclusion of the unused appropriated fund balance, the fund balance ranged from 13 percent to 15.8 percent of the ensuing year’s appropriations, resulting in higher than necessary real property tax levies. With the significant increase in payments in lieu of taxes revenue received in 2015-16, the board and district officials elected to lower the real property tax levy 9 percent and increase educational services and support. However, auditors project that the 2015-16 results of operations will result in a favorable budget variance of approximately $915,000. As a result, the majority of the $1 million appropriated in fund balance for 2015-16 likely will not be used, and the district’s recalculated fund balance will likely continue to exceed the statutory limit.
The school board and treasurer ensured that disbursements were for proper district purposes and adequately supported. The treasurer submitted prepared checks, including supporting documentation, to the board for audit and approval prior to payment.
For access to state and local government spending and nearly 50,000 state contracts, visit OpenBookNY. The easy-to-use website was created by Comptroller DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.