New York State Comptroller Thomas P. DiNapoli today announced his office completed audits of the Albion Central School District, Blind Brook-Rye Union Free School District, Copenhagen Central School District, Eastchester Union Free School District, Middle Country Central School District, Mount Markham Central School District, Nassau County Board of Cooperative Educational Services, New York Mills Union Free School District, North Greenbush Common School District, Oneida City School District, Saratoga Springs City School District, South Orangetown Central School District, St. Regis Falls Central School District, Watkins Glen Central School District, Weedsport Central School District and the Whitesboro Central 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].
District officials did not prepare accurate budgets for the 2010-11 through the 2015-16 fiscal years. While the district appropriated fund balance to help finance operations, it was not needed because the district’s budgeting practices regularly produced significant operating surpluses. District officials plan to use $13 million of the accumulated surplus to finance a capital project, rather than issue debt that aligns with the state’s building aid payment schedule. District officials have maintained real property taxes at a consistent level over the past five years. However, the district’s tax levy could have been $2 million lower for each of the last five fiscal years, and the district would have continued to realize an operating surplus each year.
District officials procured goods and services in accordance with state law and the district’s purchasing policy and regulations. District officials have established adequate internal controls over the district’s procurement process. The board adopted a purchasing policy and regulations that provide guidance on procurement methods for all purchases, including those that do not require competitive bidding.
The board overestimated appropriations in the adopted budgets by an average of about $947,000 over the past three years. As a result, nearly 90 percent of the appropriated fund balance was not actually needed to finance operations, and unassigned fund balance was more than twice the statutory limit from fiscal years 2012-13 through 2014-15. The district has reduced the reported level of year-end unassigned fund balance from 10.9 percent of the ensuing year’s budget at the end of 2012-13 to 9.7 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 17 percent of the next year’s appropriations in all three years.
Over the last five fiscal years, budgets presented to district residents were not as transparent as they could have been because they did not include estimated amounts for tax certiorari judgments or amounts to fund them. District officials issued debt to pay for tax certiorari judgments, which masked the district’s true operating results. Without the issuance of debt, the district’s fund balance would have declined by almost $3.1 million. Although the district appropriated $4.5 million of fund balance over the last five years which was intended to fund a portion of the budget, only $333,623 of this amount was actually used.
The board has not adopted reasonable and structurally balanced budgets. From fiscal years 2012-13 through 2014-15, the board overestimated expenditures by between $16.2 million and $18.3 million. Despite these variances, the district has reported operating deficits for each of the last three fiscal years. The board appropriated an average of $3.9 million in fund balance each year, which made it appear that it would be using it to fund operations. The district also appropriated $12.8 million in reserves in each of the last three fiscal years. Despite presenting budgets to district residents each year that made it appear that the district was depleting its reserves and fund balance, the board’s continued overestimation of appropriations has actually resulted in the district’s unassigned fund balance increasing. When unused appropriated fund balance was added back, the district’s recalculated unassigned fund balance was nearly 6 percent of the ensuing year’s appropriations, exceeding the statutory limit.
The board did not maintain some of its eight reserve funds at reasonable levels. The retirement contribution and unemployment insurance reserves, with balances totaling $2.8 million, were overfunded. In addition, the district inappropriately transferred $905,000 from four reserves to unrestricted fund balance. Further, the district did not have documentation to support that any of its reserves were formally established, and it did not have a written reserve policy. As a result, the district has unnecessarily restricted resources that could have been used for the benefit of residents.
BOCES officials have established adequate controls over the claims processing function that allow claims to be audited in a timely manner in accordance with BOCES’ policy and state law. The board delegated its responsibility to a claims auditor and established a claims auditing policy to provide guidance to the claims auditor. BOCES made 22,236 claims for disbursements totaling $260.1 million during the audit period. Of the 88 disbursements reviewed, which paid for 177 claims totaling approximately $2 million to determine if they contained sufficient documentation, all were properly authorized and approved, sufficiently itemized and for valid business purposes.
The board and district officials did not develop reasonable budgets or effectively manage the district’s financial condition. The district appropriated an average of approximately $1.4 million in fund balance annually, which was not needed to fund operations due to operating surpluses. District officials consistently overestimated expenditures by almost $6.9 million (13.6 percent) over the last four fiscal years (2011-12 through 2014-15). These budgeting practices generated approximately $1.5 million in operating surpluses over the same period. Further, the district improperly reported about $1.3 million of unrestricted fund balance in the debt service fund and improperly encumbered $100,000. These practices allowed the district to appear that it was within the statutory limit imposed on the level of unrestricted fund balance. However, when adding back unused appropriated fund balance, moneys that were improperly placed in the debt service fund and an erroneous encumbrance, the district’s recalculated unrestricted fund balance was about 25 percent of the ensuing year’s appropriations.
District officials did not effectively manage the district’s financial condition by ensuring budget estimates were reasonable and based on historical costs and trends. From fiscal years 2012-13 through 2014-15, the district overestimated expenditures by a total of more than $1.4 million (or 19.6 percent). Due to the overestimated expenditures, the district incurred operating surpluses totaling more than $900,000 in these three years and did not use any of the $500,000 appropriated fund balance to fund operations. As a result, the district has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $1.6 million, or 75 percentage points, as of June 30, 2015. These practices caused the district to levy more taxes than were needed to fund operations.
Auditors found questionable activity and unnecessary permissions granted for changing student grades, modifying student information system (SIS) permissions, assuming accounts or identities and viewing private, personal and sensitive information. There were also unnecessary user accounts in the SIS, including those for former district employees, former third-party personnel, and substitute secretaries and nurses that only need occasional access. These issues were the result of, at least in part, district officials’ failure to review SIS audit logs on a regular basis, properly manage accounts and permissions and establish effective policies and procedures.
The district’s reported unrestricted fund balance for the past three years was understated because the district incorrectly restricted funds for the future payments of other post-employment benefits (OPEB). With the inclusion of the incorrectly restricted funds, the unrestricted fund balance was in excess of the 4 percent statutory limit for the 2012-13, 2013-14 and 2014-15 fiscal years. The assistant superintendent of business stated the board wanted to partially fund the district’s future OPEB. However, there is no legal authority for the district to fund its OPEB.
District officials have established effective procedures to ensure claims are adequately documented and supported, are for legitimate district purposes and are approved prior to payment, in accordance with district policy and state law. The board has delegated its claims auditing responsibility to a claims auditor.
The district did not comply with state law and retained unrestricted fund balance in amounts at the end of the 2012-13 through 2014-15 fiscal years that ranged from 20.1 to 27.8 percent of the ensuing years appropriations. As of June 30, 2015, the unrestricted fund balance exceeded the statutory limit by more than $1.9 million. The district has retained excessive levels of unrestricted fund balance even though each of the district’s last six independent audit reports contained a finding related to the unrestricted fund balance being in excess of the statutory limit. The business manager said the district had not implemented corrective action due to the uncertainty of potential state aid reductions and that, without the excess levels of unrestricted fund balance, the district would have had to cut programs and positions.
District’s health insurance rates increased three times during 2012-13, and premiums were projected to increase by 12 percent annually over the next four years based on estimates. District officials assessed the benefits and costs associated with the health insurance coverage and pursued alternate coverage at a lower cost. As a result, the district achieved cost savings by changing health insurance carriers and offering employees a buyout incentive. From July 1, 2013 through June 30, 2016, the cost savings will total approximately $3.9 million.
District officials have generally taken appropriate action to manage the district’s financial condition and are planning to increase future fund balance. From fiscal years 2012-13 through 2014-15, district officials typically prepared accurate budgets that generated minimal operating surpluses or planned operating deficits. To maintain programs and manageable tax increases, while dealing with the loss of $3.5 million in state aid, district officials used fund balance and interfund transfers to finance general fund operations. Because of this practice, the district’s 2014-15 unrestricted fund balance decreased to 1.2 percent of 2015-16 budgeted appropriations. District officials acknowledged the decline in unrestricted fund balance and developed a plan to increase it to between 3 and 4 percent of the ensuing year’s budget.
The district has implemented an effective claims audit process. The board appointed a claims auditor and adopted a claims auditing policy establishing procedures for auditing claims. The policy requires the claims auditor to report directly to the board regarding the claims audit results. The claims auditor is required to examine all claims for adequate evidence to support the district’s expenditure. Auditors found that claims were for appropriate purposes and were adequately supported, audited and approved 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.