New York State Comptroller Thomas P. DiNapoli today announced his office completed audits of the
Afton Central School District, Chateaugay Central School District, Deer Park Union Free School District, East Syracuse-Minoa Central School District, Edwards-Knox Central School District, Falconer Central School District, Fayetteville-Manlius Central School District, Granville Central School District, Herkimer-Fulton-Hamilton-Otsego Board of Cooperative Educational Services, Lancaster Central School District, Lyndonville Central School District, Odessa-Montour Central School District, Union-Endicott Central School District, Victor Central School District, Town of Webb Union Free School District, William Floyd Union Free School District and Wyoming Central School District.
State Comptroller DiNapoli has made it a priority to audit school district, BOCES 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 ensure that unrestricted fund balance and reserves were reasonable. The unrestricted fund balance has been well over the statutory limit for the past several years, while at the same time real property taxes were raised to the maximum allowable by the property tax cap regulations. Budgeting practices have contributed to appropriated fund balance and reserves not being used as budgeted. Certain reserves had excessive balances when compared to their respective liabilities.
The district did not accurately maintain employees’ leave accrual records. Auditors reviewed 15 employees’ leave accrual records during the audit period to determine whether the leave time that they recorded on their time records or leave request forms was properly deducted from their leave accrual balances. Errors were found in the leave accrual records for nine of the 15 employees. The cumulative effect of these errors is that four employees’ leave accrual balances were overstated by a total of almost 20 days, valued at $8,201, and two employees’ leave accrual balances were understated by a total of more than one day, valued at $298.
The board ensured that bank reconciliations were properly prepared to safeguard district assets. The treasurer reconciles the bank accounts on a monthly basis by comparing the bank balances to the general ledger balances and accounts for any transactions that have not yet been recorded by the bank (e.g., outstanding checks) and transactions processed by the bank but not yet recorded in the district’s general ledger (e.g., earned interest or fees).
District officials have established a formal process for assigning and reviewing user access rights for conflicting duties, as recommended by previous audits. However, district officials have not addressed the conflicting duties regarding the payroll access rights adequately.
Edwards-Knox Central School District – Transportation State Aid and Reserve Funds (St. Lawrence County)
The district did not apply for all the transportation state aid to which it was entitled for new bus purchases in a timely manner. The business manager did not report nine buses that were purchased during the audit period to the New York State Education Department for approval for transportation state aid. Had auditors not notified district officials of this, the district could have lost $612,902 in related aid consisting of $157,127 that the district would have received during the 2013-14 through 2015-16 fiscal years and $455,775 that project the district would have received during the 2016-17 through 2020-21 fiscal years. The district also maintained five reserves in its general fund during the audit period, which consisted of an employee benefit accrued liability, retirement contribution, unemployment insurance, workers’ compensation and insurance reserve. As of June 30, 2015, the five reserves had balances totaling approximately $2.5 million. The district did not appropriately establish, fund and/or use four of these reserves totaling approximately $2.4 million, and the board did not adopt a reserve policy.
District officials did not prepare accurate budgets for the 2012-13, 2013-14 and 2014-15 fiscal years. The district overestimated appropriations by an average of $2.5 million each year. While the district appropriated fund balance to help finance operations, the amounts appropriated were generally not used. Furthermore, unrestricted fund balance has exceeded the legal limit annually. As of June 30, 2015, unrestricted fund balance was $2.6 million (12 percent of the ensuing year’s budget) or approximately $1.7 million over the legally allowable limit. Finally, the district improperly retained $5.7 million in a debt reserve and overfunded the employee benefit accrued liability reserve by $220,000 (20 percent).
District officials have established adequate procedures over the claims processing function to ensure that claims are adequately documented and supported, are for appropriate purposes, and are audited and approved prior to payment. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate district purposes, whether the goods or services being billed for were actually received, and whether the claims are adequately documented and supported.
The board has established a fund balance policy stating that the board will keep unrestricted fund balance between a minimum of 2 percent of the ensuing year’s appropriations and the 4 percent maximum allowed by law. However, for the past four years the district did not comply with its policy and the law, retaining unrestricted fund balance of 20 to 22.6 percent of the ensuing year’s appropriations. These levels exceeded the statutory limit by more than $4 million, or at least 16 percentage points, each year.
Herkimer-Fulton-Hamilton-Otsego Board of Cooperative Educational Services – Claims Audit Process (2016M-185)
BOCES officials have established adequate procedures over the claims processing function to ensure that claims were adequately documented and supported, for appropriate purposes, and audited and approved prior to payment. The board has delegated its claims auditing responsibility to a claims auditor. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate BOCES purposes, the goods or services being billed for were actually received, and the claim was adequately documented and supported.
While the board and district officials have generally maintained unrestricted fund balance levels in accordance with statutory limits, auditors found that district officials used budgeting practices that appropriated fund balance and reserves that were not actually used. The district routinely overestimated expenditures and, as a result, did not use an equivalent amount of appropriated fund balance and reserves as budgeted. Once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the district’s recalculated unrestricted fund balance ranges from 6 percent to 8 percent of the ensuing years’ appropriations for the fiscal years 2012-13 through 2014-15, exceeding the statutory limit. In addition, district officials consistently budgeted in the general fund for expenditures that could have been paid for with reserve funds, five of which appear to be overfunded by more than $18 million. As a result, the district has levied higher taxes than necessary.
The board did not adopt realistic budgets or ensure that reserves were reasonably funded. District officials consistently overestimated appropriations in the general fund budget from 2012-13 through 2014-15 totaling more than $3.4 million, generating approximately $2.7 million in operating surpluses. The district used the operating surpluses to fund various reserves, which led to reserve balances increasing by more than $2.4 million (32 percent) since July 1, 2012. Although officials appropriated an average of approximately $333,000 in fund balance and $258,000 in reserves annually towards the ensuing year’s budget, none of the appropriated funds were used because of consistent year-end surpluses.
The board and district officials did not adequately manage the district’s financial condition. They overestimated general fund appropriations when preparing and adopting the last three completed fiscal year’s budgets, resulting in operating surpluses totaling $2.5 million. As of June 30, 2015, district officials overfunded three reserves totaling $782,596, incorrectly recorded deferred revenue totaling $453,301 and overstated a liability totaling $59,870, which further increases the excessive amount of unrestricted fund balance. When combining the unused appropriated fund balance and reserves with the other overstatements and excesses, the district’s recalculated unrestricted fund balance was between 13 and 26 percent of the ensuing year’s appropriations, exceeding the 4 percent statutory limit.
Over the five-year period ending June 30, 2015, the district maintained unrestricted fund balance within the 4 percent statutory maximum. However, the board appropriated more fund balance than needed, resulting in an estimated net budget variance of $20.6 million from 2011-12 through 2015-16. After the unused appropriated fund balances are added back, the unrestricted fund balance exceeds the statutory limit, ranging from 6 percent to 7.4 percent of the ensuing year’s appropriations. Although four of the district’s six reserve funds had reasonable balances, the retirement contribution reserve and the employee benefit accrued liability reserve had significant balances in excess of their respective liabilities. As a result of these practices, district officials levied real property taxes that were higher than necessary.
The board and district officials have not implemented appropriate information technology (IT) policies and procedures related to personal, private and sensitive information classification or data backups. Additionally, the board has not adopted a sufficient, comprehensive disaster recovery plan. Consequently, IT assets are at risk for unauthorized, inappropriate and wasteful use, and the district could encounter an interruption in services.
District officials did not ensure that the district’s unrestricted fund balance was within the statutory limit during the past three fiscal years (2012-13 through 2014-15). The district’s unrestricted fund balance exceeded the statutory limit for these years ranging from 6.5 to 10.7 percent. As of June 30, 2015, the district’s unrestricted fund balance totaled more than $570,000, which exceeded legal limits by $223,561. Because the district overestimated expenditures by approximately $2.3 million from 2012-13 through 2014-15, it used only a small amount ($92,072 or 3 percent) of the nearly $3.3 million of fund balance that was appropriated for the same period.
The payroll manager performs incompatible duties without sufficient oversight or independent review. District officials instituted a compensating control by having the superintendent, who is independent of the payroll process, certify the payrolls. However, no one independent of the payroll process reviews hourly rates or annual salaries entered by the payroll manager for accuracy or compares the payroll registers with payroll source documents (i.e., time records) to ensure that payments were based on the actual hours or days worked prior to payroll processing. In addition, the district does not have adequate procedures in place to ensure overtime is preapproved, and district officials generally did not preapprove overtime worked by employees.
Although the board and district officials have generally maintained fund balance levels in accordance with the law, they have annually appropriated portions of fund balance for the subsequent year’s budget that were not used because they consistently overestimated appropriations. This trend is projected to continue through 2015-16. Once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the district’s recalculated unrestricted fund balance ranged from $692,000 (14 percent) in 2012-13 to $749,000 (15 percent) in 2014-15. Furthermore, even though unrestricted fund balance continued to increase through June 30, 2015, district officials continued to raise the tax levy every year. Had district officials retained the same tax levy as in 2012-13, residents could have realized approximately $380,000 in cumulative savings.