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					OFFICE   OF THE   NEW YORK STATE COMPTROLLER
                  D IVISION OF LOCAL GOVERNMENT
                      & SCHOOL ACCOUNTABILITY




       Liverpool
 Central School District
   Internal Controls Over
Selected Financial Activities
           Report of Examination
                   Period Covered:
          July 1, 2005 — December 31, 2006
                      2008M-19




               Thomas P. DiNapoli
                               Table of Contents



                                                                               Page

AUTHORITY LETTER                                                                3


EXECUTIVE SUMMARY                                                               5


INTRODUCTION                                                                    8
           Background                                                           8
           Objective                                                            8
           Scope and Methodology                                                9
           Comments of District Officials and Corrective Action                  9


CONTROL ENVIRONMENT                                                            11
           Recommendation                                                      13


COMPENSATION AND BENEFITS                                                      14
           Former Superintendent                                               14
           Other Employees                                                     18
           Former Board Member                                                 20
           Recommendations                                                     23


STUDENT LAPTOP COMPUTER PROGRAM                                                25
            Inventory Controls                                                 26
            Segregation of Duties                                              27
            Record Keeping                                                     28
            Enforcement of Delinquent Lease Payments                           30
            Recommendations                                                    31


DONATION OF DISTRICT ASSETS                                                    32
            Sale of Laptop Computers                                           32
            Airports                                                           34
            State Aid Payments                                                 36
            Recommendations                                                    38


                      DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY          1
                                                                                      1
EXTRA-CLASSROOM ACTIVITY FUNDS                                 39
            Policy                                             39
            Non-Student Club Activities                        40
            Reports                                            42
            Cash Receipts and Disbursements                    43
            Recommendations                                    44


LEGAL SERVICES                                                 45
            Recommendations                                    46


APPENDIX   A   Response From District Officials                 47
APPENDIX   B   OSC Comments on the District’s Response         64
APPENDIX   C   Audit Methodology and Standards                 68
APPENDIX   D   How to Obtain Additional Copies of the Report   70
APPENDIX   E   Local Regional Office Listing                    71




  2       OFFICE OF THE NEW YORK STATE COMPTROLLER
                                              State of New York
                                 Office of the State Comptroller

Division of Local Government
and School Accountability

July 2008

Dear School District Officials:

A top priority of the Office of the State Comptroller is to help school district officials manage their
districts efficiently and effectively and, by so doing, provide accountability for tax dollars spent
to support district operations. The Comptroller is mandated to oversee the fiscal affairs of districts
statewide, as well as districts’ compliance with relevant statutes and observance of good business
practices. This fiscal oversight is accomplished, in part, through our audits, which identify
opportunities for improving district operations and Board of Education governance. Audits also
can identify strategies to reduce district costs and to strengthen controls intended to safeguard district
assets.

Following is a report of our audit of the Liverpool Central School District, entitled Internal Controls
Over Selected Financial Activities. This audit was conducted pursuant to Article V, Section 1 of
the State Constitution, and the State Comptroller’s authority as set forth in Article 3 of the General
Municipal Law.

This audit’s results and recommendations are resources for district officials to use in effectively
managing operations and in meeting the expectations of their constituents. If you have questions about
this report, please feel free to contact the local regional office for your county, as listed at the end of
this report.

Respectfully submitted,


Office of the State Comptroller
Division of Local Government
and School Accountability




                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    3
                                                                                                     3
                                                                  State of New York
                                                     Office of the State Comptroller
                                                       EXECUTIVE SUMMARY


The Liverpool Central School District (District) is governed by the Board of Education (Board) which
comprises nine elected members. The Board is responsible for the general management and control of
the District’s financial and educational affairs. The Superintendent of Schools (Superintendent) is the
chief executive officer of the District and is responsible, along with other administrative staff, for the
day-to-day management of the District under the direction of the Board.

Scope and Objective

The objective of our audit was to examine the District’s internal controls over selected financial
activities for the period July 1, 2005 through December 31, 2006. We extended the scope of our
audit back to July 1, 2000 to review the compensation paid to the former Superintendent and
back to October 1, 1997 to review the health insurance benefits provided to a Board member.
Additionally, our review of Airport base station inventories was extended from June 1, 2003 to April
30, 2007. In some instances, we reported on transactions and activities outside of these periods
because we considered it necessary and relevant to this audit.

Our audit addressed the following related questions:

   •   Has the District provided compensation and benefits to school employees and officials in
       accordance with the terms of relevant contractual agreements and Board policies?

   •   Are internal controls over the District’s student laptop computer program appropriately
       designed and operating effectively to adequately safeguard District assets?

   •   Did the District improperly donate District assets to outside organizations?

   •   Did the District have adequate internal control policies and procedures to protect and account
       for District extra-classroom activity funds?

   •   Did the Board request proposals and enter into written contracts for legal services?

Audit Results

Over a period of years, the District had a weak control environment which resulted in a questionable
pattern of behavior on the part of District officials and lax controls over the use of taxpayer
monies. We identified a number of questionable transactions, including overpayments to the former

                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                   5
                                                                                                    5
Superintendent, the circumventing of controls by the former Superintendent in an effort to allow a
Board member to receive free health insurance benefits and the donation of District assets to outside
organizations. The District’s lax controls over District assets resulted in over $250,000 in District
monies and equipment being used either inappropriately or irresponsibly.

The District did not have adequate internal controls in place to ensure that its officers and employees
received compensation and benefits in accordance with the terms of their contractual agreements or
Board policies. As a result, the former Superintendent was overpaid a total of $26,275 during the 2000-
01 to 2002-03 fiscal years, and leave records were not available to support payments he received for
unused leave totaling $67,790. In 2005-06, the Superintendent approved payments totaling $15,000
into the tax shelter annuities of three employees without Board authorization. In addition, the District
did not properly bill a former Board member for his health insurance coverage, resulting in the District
incurring $44,283 in insurance costs without receiving reimbursement. When the Board became
aware of this matter, it initiated an investigation to look into it. The District stopped providing
health insurance benefits to the Board member in December 2005 and he resigned from the Board in
July 2006.

As part of the District’s student laptop computer program, the District provides each student
participant in Grades 10 through 12 with a laptop computer. The District leases the laptops from
Onondaga-Cortland-Madison BOCES (OCM BOCES) and then the student and his/her parent enter
into an agreement to lease the laptop from the District. The District had weak management controls
over its student laptop program which resulted in 32 laptops (costing about $38,400) that the District
could not locate.

The District violated the State Constitution when it donated the proceeds from the sale of 28 new
laptop computers to a nonprofit corporation. Cash and checks received from the sale of the laptops
were not deposited into a District bank account or recorded in the District’s accounting records.
Instead, the cash and checks were given directly to a nonprofit corporation. This circumvented the
District’s regular disbursement procedures, entirely bypassing the claims audit and approval process.

During the 2004-05 fiscal year, various organizations such as Parent Teachers Associations, non-
profit community groups and extra-classroom activity groups coordinated with the District and the
Oswego and OCM BOCES to support various student activities covered by the District’s Arts In
Education, Environmental Education and Planetarium agreements. These outside groups provided the
District with funding for the activities. BOCES contracted with and paid the service providers (e.g.
orchestra, ticket vendor), after which the District reimbursed BOCES the cost plus an administrative
fee. The following year, the District received BOCES State aid to partially reimburse it for services
purchased through BOCES. The District then reimbursed the outside organizations 46 percent of the
costs they incurred to finance the activity. During the 2005-06 year, the District paid the organizations
a total of $85,080. Although the community, student and parent organizations donated money to help
the District fund programs in the arts and sciences, the District had no authority to pass the resulting
State aid back to these organizations.

Our audit of extra-classroom activity funds disclosed that the District had several activities that were
not run by students and therefore should not have been accounted for in the extra-classroom activity
fund. The Board did not receive useful reports to oversee extra-classroom activities, cash receipts


   6        OFFICE OF THE NEW YORK STATE COMPTROLLER
were not always deposited timely and the District’s control system over cash receipts failed to detect
the theft of monies on a timely basis.

The District paid $659,943 to one law firm for legal services during our 18-month audit period
without entering into a written agreement, or soliciting written proposals as required by the District’s
administrative memorandum. A written agreement with District officials helps clearly define for
both parties the services that will be provided or the rate that will be charged. Additionally, when the
District hires professionals with the benefit of RFPs, the District can be more certain that it is securing
the most economically beneficial and qualified service provider available.

Current District Management has recognized the need for improving the District’s internal control
environment. Steps have been taken to strengthen internal controls by establishing an Ethics
Committee, adopting a new code of ethics and a whistleblower policy and providing training on
these policies to District administrators. In addition, District officials told us that the District has
taken a number of other actions to help improve the District’s internal controls. For example, the
District discontinued the use of general-purpose credit cards and it adopted a policy to restrict
the use of District-owned cellular telephones. In December 2006, the Superintendent issued
written guidelines to District employees related to conference and travel expenses. The District
also contracted with a CPA firm to review the activities of the extra-classroom activities fund in
2003, 2006 and 2007 and it has taken various actions over these years to remove non-student clubs
from the fund. The District has also addressed some findings in this report by phasing out the student
laptop program, discontinuing the practice of funding various outside organizations, and established
administrative regulations governing the operation of extra-classroom activities. The District also
provided training to its administrators in June 2007 on the proper management of extra-classroom
activities.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their
comments, which appear in Appendix A, have been considered in preparing this report. Except as
stated in Appendix A, District officials generally agreed with our findings and recommendations, and
indicated they will take, or have taken, corrective action. Appendix B contains OSC’s comments on
issues raised in the District’s response.




                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    7
                                                                                                     7
                                    Introduction
Background                  The Liverpool Central School District (District), encompassing
                            approximately 50 square miles, is located in Onondaga County
                            within the Towns of Clay and Salina. The District is governed
                            by the Board of Education (Board) which comprises nine elected
                            members. The Board is responsible for the general management
                            and control of the District’s financial and educational affairs. The
                            Superintendent of Schools (Superintendent) is the chief executive
                            officer of the District and is responsible, along with other
                            administrative staff, for the day-to-day management of the District
                            under the direction of the Board. The current Superintendent has
                            served from July 1, 2003 to the present. The previous Superintendent
                            served from July 1, 1993 to June 30, 2003.

                            There are 15 schools in operation within the District, with
                            approximately 8,300 students and 1,400 full- and part-time
                            employees. The District’s general fund operating expenditures for
                            the 2005-06 fiscal year were about $112 million, which were funded
                            primarily with State aid and real property taxes.

                            District officials must establish a system of internal controls
                            designed to provide reasonable assurance that District assets
                            are properly safeguarded from unauthorized use or disposition
                            and are accounted for properly. Such a system reasonably
                            ensures, among other things, that District officers and employees
                            receive compensation and benefits in accordance with Board
                            authorizations, monies received by the District are accurately
                            recorded and promptly deposited, technology assets are not lost,
                            misplaced or stolen, and expenditures comply with District policy
                            and are for proper District purposes. Such a system should also
                            provide for the timely identification of errors and/or irregularities,
                            which may have occurred so that corrective action can be taken.
                            Once established, District officials must monitor the controls to
                            ensure that they are operating properly.

Objective                   The objective of our audit was to examine the District’s internal
                            controls over selected financial operations. Our audit addressed the
                            following related questions:

                                •   Has the District provided compensation and benefits to
                                    school employees and officials in accordance with the terms
                                    of relevant contractual agreements and Board policies?




  8         OFFICE OF THE NEW YORK STATE COMPTROLLER
                                  •   Are internal controls over the District’s student laptop
                                      computer program appropriately designed and operating
                                      effectively to adequately safeguard District assets?

                                  •   Did the District improperly donate District assets to outside
                                      organizations?

                                  •   Did the District have adequate internal control policies and
                                      procedures to protect and account for District extra-classroom
                                      activity funds?

                                  •   Did the Board request proposals and enter into written
                                      contracts for legal services?

Scope and                      We examined the District’s internal controls over selected financial
Methodology                    activities for the period July 1, 2005 to December 31, 2006. We
                               extended the scope of our audit back to July 1, 2000 to review
                               the compensation paid to the former Superintendent and back to
                               October 1, 1997 to review the health insurance benefits provided to
                               a Board member. Additionally, our review of Airport base station
                               inventories was extended from June 1, 2003 to April 30, 2007. In
                               some instances, we reported on transactions and activities outside of
                               these periods because we considered it necessary and relevant to this
                               audit.

                               We conducted our audit in accordance with generally accepted
                               government auditing standards (GAGAS). More information on
                               such standards and the methodology used in performing this audit is
                               included in Appendix C of this report.

Comments of District           The results of our audit and recommendations have been discussed
Officials and Corrective        with District officials and their comments, which appear in
Action                         Appendix A, have been considered in preparing this report. Except
                               as stated in Appendix A, District officials generally agreed with
                               our findings and recommendations, and indicated they will take, or
                               have taken, corrective action. Appendix B contains OSC’s comments
                               on issues raised in the District’s response.

                               The Board has the responsibility to initiate corrective action.
                               Pursuant to Section 35 of the General Municipal Law, Section 2116-a
                               (3)(c) of the Education Law and Section 170.12 of the Regulations of
                               the Commissioner of Education, the Board must approve a corrective
                               action plan that addresses the findings in this report, forward the
                               plan to our office within 90 days, forward a copy of the plan to the
                               Commissioner of Education, and make the plan available for public
                               review in the District Clerk’s office. For guidance in preparing the


                          DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY               9
                                                                                               9
                     plan of action, the Board should refer to applicable sections in the
                     publication issued by the Office of the State Comptroller entitled
                     Local Government Management Guide.




10   OFFICE OF THE NEW YORK STATE COMPTROLLER
     Control Environment

     The internal control system, established by the Board and
     implemented by District officials, is an integration of the activities,
     plans, attitudes, policies and efforts of the people of an organization.
     An effective internal control system should be designed to provide
     reasonable assurance that District resources are adequately
     safeguarded from loss, waste and abuse and that all financial
     activities are accounted for properly.

     A vital component in any internal control system is the control
     environment or “the tone at the top.” The control environment is
     a reflection of management’s attitude about internal controls
     and includes the integrity, ethical values, and competence of the
     organization’s people, and management’s philosophy and operating
     style. To facilitate a strong control environment, management must
     inform employees of their duties and responsibilities, provide the
     information necessary for employees to carry out their responsibilities,
     and convey the message to employees that internal controls are
     important. Management must also establish an environment that
     encourages employees to suggest improvements and report any
     sensitive matters to management.

     When the control environment is strong, there is an expectation that
     everyone, including top management, will conform to established
     controls and uphold the public trust. Without an adequate internal
     control system, an environment is created in which assets are not
     protected against loss or misuse; good business practices are not
     followed; goals and objectives may not be accomplished; and
     individuals are not deterred from engaging in dishonest, illegal, or
     unethical acts.

     Over a period of years, the “tone at the top” at the District was poor
     and did not facilitate a strong control environment. The number of
     dubious transactions identified in this report, some going back to at
     least the year 2000, show a questionable pattern of behavior on the
     part of District officials and lax controls over the use of taxpayer
     monies. This ultimately contributed to over $250,000 in District
     monies and equipment being used inappropriately or irresponsibly.

     In an effort to help the former Superintendent maximize his
     retirement benefits, the Board amended his contract in 2000, allowing
     him to add the cash value of the health, dental, life and disability
     insurances to his base salary. From July 1, 2000 to June 30, 2003, the
     cash value of the insurance was added to the former Superintendent’s

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                 11
                                                                       11
                     base salary and then deducted from his gross salary and used by
                     the District to pay for continued insurance coverage. Although the
                     New York State Teachers’ Retirement System ultimately disallowed
                     the inclusion of the health insurance premiums in his final average
                     salary, the Board and former Superintendent’s attempt to inflate his
                     earnings prior to retirement demonstrated a weak tone at the top with
                     little regard to ethical standards. The former Superintendent also
                     received $26,275 in compensation and benefits to which he was not
                     entitled and the District allowed him to cash in unused leave totaling
                     $67,790 without retaining any documentation to support that he was
                     entitled to the payments. Three other District managers also received
                     payments totaling $15,000 into their tax shelter annuities without
                     Board authorization.

                     In addition, the former Superintendent overrode the District’s normal
                     health insurance billing procedures when he directed staff not to bill
                     the Board President at that time for his health insurance coverage.
                     As a result, the District incurred $44,283 in excess insurance
                     costs. When the Board became aware of this matter, it initiated an
                     investigation to look into it. The District stopped providing health
                     insurance benefits to the Board member in December 2005 and he
                     resigned from the Board in July 2006.

                     We also found that deficient internal controls allowed over $120,000
                     in District and OCM BOCES assets to be improperly donated to
                     outside organizations and institutions from 2004 to 2006. This
                     includes $10,260 in technology equipment that was transferred
                     to the Syracuse Diocese Catholic Schools (Diocese) in 2004. The
                     former Superintendent was serving as the Superintendent for the
                     Diocese when these assets were transferred to the Diocese.

                     Current District management has taken action to improve the
                     District’s system of internal controls. For example, the Board
                     adopted a new code of ethics in June 2006, established an Ethics
                     Committee in January 2007 and adopted a whistleblower policy in
                     February 2007. The District provided training on these policies to its
                     administrators in August 2007. The District also adopted a policy and
                     regulation governing extra-classroom activity funds, and it provided
                     training to its administrators on extra-classroom activities in June
                     2007.

                     In addition, District officials told us that the District has taken
                     a number of other actions to help improve the District’s internal
                     controls since July 2003. For example, the District discontinued
                     the use of general-purpose credit cards and it adopted a policy to
                     restrict the use of District-owned cellular telephones. In December
                     2006, the Superintendent issued written guidelines to District

12   OFFICE OF THE NEW YORK STATE COMPTROLLER
                      employees related to conference and travel expenses. The District
                      also contracted with a CPA firm to review the activities of the extra-
                      classroom activities fund in 2003, 2006 and 2007 and it has taken
                      various actions over these years to remove non-student clubs from the
                      fund. The District has also addressed some findings in this report by
                      phasing out the student laptop program and discontinuing the practice
                      of funding various outside organizations.

                      Competent and ethical governance requires the Board to strengthen
                      the District’s control environment. This is an essential first step in
                      correcting the control deficiencies identified in our report.

Recommendation        1. The Board and District officials should establish a strong
                         control environment by exhibiting a “tone at the top” that shows
                         employees that there is an expectation that everyone, including
                         top management, will conform to established controls and uphold
                         the public trust.




                 DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY              13
                                                                                     13
                        Compensation and Benefits

                          All benefits provided to District employees must be properly
                          authorized. Documenting this authorization in writing, by resolution,
                          policy document approved by the Board, or negotiated employment
                          contract, is an important internal control over payroll and fringe
                          benefit expenditures because it communicates the District’s intent
                          and provides a framework for compensating officers and employees
                          that is clearly understood by everyone involved in the process. A
                          good system of internal controls over payroll and employee benefits
                          also requires the preparation of payroll information that agrees and
                          is calculated in accordance with the Board-authorized pay scales and
                          benefit packages.

                          The District did not have adequate internal controls in place to ensure
                          that its officers and employees received compensation and benefits
                          in accordance with the terms of their contractual agreements or
                          Board policies. As a result, the former Superintendent was overpaid
                          a total of $26,275 during the 2000-01 to 2002-03 fiscal years, and
                          leave records were not available to support payments he received
                          for unused leave totaling $67,790. In 2005-06, the Superintendent
                          approved payments totaling $15,000 into the tax shelter annuities
                          of three employees without Board authorization. These same three
                          employees were entitled to a combined total of about $2,277 in
                          life insurance coverage or tax shelter annuity contributions, which
                          they did not receive. In addition, the District did not properly bill a
                          former Board member for his health insurance coverage, resulting in
                          the District incurring $44,283 in insurance costs without receiving
                          reimbursement.

Former Superintendent     We reviewed payroll payments made to or on behalf of the former
                          Superintendent from July 1, 2000 until his retirement on June
                          30, 2003 and compared them to his employment contracts, Board
                          resolutions and other available documentation. We found the
                          following overpayments and unsupported payments:

                          Insurance Benefits – The former Superintendent’s employment
                          contract with the District and a Board resolution provided for health
                          and medical, dental, life and disability insurance coverage. The District
                          paid for substantially all of this coverage, only requiring the former
                          Superintendent to contribute 10 percent of his personal health
                          and medical coverage and 15 percent of his dependents’ coverage.1

                          1
                           The former Superintendent was also required to contribute 15 percent for his
                          dental insurance coverage and 25 percent for his dependents’ dental coverage.

 14       OFFICE OF THE NEW YORK STATE COMPTROLLER
     The original term of his last employment contract was for three years
     (July 1, 1996 to June 30, 1999). Subsequent amendments made by
     the Board extended the contract through June 30, 2003, the date of the
     former Superintendent’s retirement.

     In 2000 the Board amended the contract (effective July 1, 2000)
     allowing the former Superintendent, “…to have the cash value of
     the health and medical, dental, life and disability insurances that he
     receives [under the contract] added to his base salary… in lieu of
     receiving such benefits in kind.” District records show that during
     the three-year period from July 1, 2000 to June 30, 2003, the “cash
     value” of the insurance (the amount of the employer’s share of
     premiums payable) was added to the former Superintendent’s base
     salary. However, the amount added was then deducted from his
     gross salary and used by the District to pay for continued insurance
     coverage. Thus, while the former Superintendent’s gross salary was
     increased by this contract amendment, the increase was to be offset
     dollar-for-dollar by payroll deductions resulting in no increase in his
     actual compensation.

     However, the former Superintendent’s earning records for the three-
     year period disclosed instances in which the District added too much
     to his regular salary and other instances in which the District did
     not deduct enough. In total, these errors resulted in overpayments
     of $6,275 to the former Superintendent. Of this amount, $3,294
     related to health and dental insurance and $2,981 related to life
     insurance. The former Superintendent provided us with copies of
     memos he received from the District at the beginning of each of his
     last three years in office which show his revised salary (after adding
     the cash value of the insurances) and the planned deductions for the
     insurances from his pay. He assumed that the District was following
     these memos and was properly executing the salary adjustments and
     deductions.

     After the former Superintendent retired, the New York State
     Teachers’ Retirement System (NYSTRS) questioned the inclusion of
     the cost of health insurance premiums in his gross salary during the
     2000-01 to 2002-03 fiscal years and ultimately disallowed it in the
     calculation of his final average salary for retirement benefit purposes.
     The NYSTRS concluded that the arrangement was an attempt to
     convert non-reportable monies into reportable compensation. They
     determined that the monies in question constituted health insurance
     premiums, which, though reported by the District as regular salary,
     continued to be paid by the District directly to the insurance carrier(s)
     in order to ensure continuation of health insurance benefits. This


DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                  15
                                                                        15
                      determination resulted in an exclusion of $27,277 from his final
                      average salary.2

                      Split-Dollar Life Insurance – On November 4, 1996, the Board
                      entered into an agreement with the former Superintendent, which
                      provided for the District to fund his split-dollar life insurance
                      policy during the 1996-97 to 2000-01 school years.3 The District
                      agreed to pay an annual premium of $10,000 during this five-year
                      period, with the requirement that the District would be named as a
                      beneficiary of the policy to the extent of the cumulative amount of the
                      District’s premium payments. The agreement calls for the District
                      to be repaid either out of the death benefits or out of the cash value
                      of the policy in the event the policy is terminated prior to the former
                      Superintendent’s death and it requires the obligation to be secured by
                      appropriate agreements. Despite a provision in the agreement stating
                      that the Board’s obligation to make payments towards premiums will
                      cease on July 1, 2001 unless otherwise agreed to by the parties, the
                      District continued to pay the $10,000 premium in both the 2001-02
                      and 2002-03 school years.

                      Amendments to the former Superintendent’s employment agreement
                      dated July 2001 and June 2002 acknowledge that the former
                      Superintendent’s employment contract was modified by the
                      November 1996 agreement. These amendments also state that “all
                      other terms of the agreement, as amended… shall remain in full
                      force and effect.” The former Superintendent contends that these
                      contract amendments allowed him to continue receiving this
                      $10,000 annual life insurance benefit in the 2001-02 and 2002-03
                      fiscal years. However, the November 1996 agreement states that
                      the District will only provide the benefit through the 2000-01 fiscal
                      year unless both parties agree otherwise. None of the subsequent
                      contract amendments specify that the Board agreed to extend the
                      benefit through the 2002-03 fiscal year. Since we found no indication
                      that the Board authorized an extension of this benefit, we have
                      concluded that the District overpaid $20,000 in premiums for the
                      former Superintendent’s split-dollar life insurance policy.

                      Upon our request, the District obtained a copy of the split-dollar
                      collateral assignment from the life insurance company. The
                      assignment references the November 1996 agreement between the
                      District and the Former Superintendent that calls for the District

                      2
                        As a Tier I member of the NYSTRS, the former Superintendent was entitled to
                      have his pension benefit calculated using either a three-year final average salary or
                      a five-year final average salary, whichever produced the greater benefit.
                      3
                        The former Superintendent’s July 1996 employment contract also includes a
                      provision for the District to pay $3,840 in premiums each school year towards a
                      separate whole life insurance policy for the former Superintendent.

16   OFFICE OF THE NEW YORK STATE COMPTROLLER
     to pay five years, or $50,000 of life insurance premiums. Since
     the District paid at least $70,0004 in premiums over seven years,
     we question whether the collateral assignment will adequately
     protect the District’s interest in the remaining $20,000 of premium
     payments. Subsequent to our audit fieldwork, the District’s legal
     counsel concluded that the collateral assignment does effectively
     protect the District’s interests. In May 2008, the District’s attorney
     sent a letter to the life insurance company to confirm that the
     collateral assignment will guarantee that the District will recover the
     full $70,741 that the District has paid toward the policy. However, a
     response from the insurance company confirming that the District is
     fully protected had not been received as of the date of this report.

     Additionally, since split-dollar life insurance5 has characteristics of a
     loan from the District to the employee to cover premium payments,
     and provides the District with a payment in return for its initial
     contribution toward premiums, there is question as to the authority of
     the District to provide such a benefit.6

     Payments of Unused Vacation Leave – The State Education
     Department prescribes the minimum length of time that school
     district officials must retain records before disposing of them. In the
     case of employee absence and accrual records, the minimum time
     of retention is six years. Leave records for all District employees
     except for the current and former Superintendent were maintained
     in the Human Resource Department’s computerized records.7 The
     Superintendent’s secretary maintained the former Superintendent’s
     leave records on a spreadsheet outside of the District’s human
     resource and payroll applications. District officials told us they could
     not find the leave record spreadsheets for the former Superintendent
     for our audit period.8

     Pursuant to his employment agreement and a subsequent
     amendment, the former Superintendent cashed in 20 unused vacation
     days each of his last three years of employment, and 61 additional
     unused vacation days upon his retirement. In total, the former
     Superintendent was paid $67,790 for unused vacation days during

     4
       The $10,000 annual premium for seven years amounts to $70,000. However,
     correspondence on file at the District indicates that the actual amount of premium
     payments was slightly higher ($70,741).
     5
       The current Superintendent also has a split-dollar life insurance policy.
     6
       The New York State Constitution, Article VIII, Section 1 prohibits school districts
     from making loans to or in aid of private individuals.
     7
       Since July 2006, the current Superintendent’s leave records have also been
     maintained in the Human Resource Department’s computerized records.
     8
       District officials located one leave record from the 1999-00 school year. This
     record was not sufficient to determine whether payments in subsequent years were
     legitimate.

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                             17
                                                                                   17
                           the three-year period from July 1, 2000 to June 30, 2003. The Former
                           Superintendent provided us with a copy of a memo from the
                           Director of Human Resources dated June 25, 2003 that summarizes
                           the former Superintendent’s salary, performance stipends, tax
                           shelter annuity payments, auto allowances, retirement incentive
                           and payouts of unused vacation leave for his last five years of
                           employment. However, District officials could not locate the
                           leave records that supported the payouts of unused vacation leave.9
                           Since the former Superintendent’s leave records were unavailable,
                           District officials could not verify that he did in fact have the unused
                           vacation leave balance(s) for which he was paid. Failing to retain
                           critical payroll information for the required length of time makes it
                           difficult or impossible to verify that employees have been correctly
                           compensated.

Other Employees            Our review of the compensation paid by the District in 2005-06 to the
                           Superintendent, two Assistant Superintendents and three Directors
                           disclosed that the Superintendent is covered by an employment
                           contract and two of the Directors are covered under the Liverpool
                           Administrators Association (LAA) collective bargaining agreement.
                           A collective bargaining unit does not represent the Assistant
                           Superintendents and the other Director; however they are included
                           in a Board policy addressing employee benefits for non-affiliated
                           personnel.10 This policy identifies the benefits given to members of
                           the LAA bargaining unit that non-affiliated employees are entitled
                           to receive.

                           Our tests disclosed no material differences when comparing the
                           compensation and benefits paid to the Superintendent and two
                           Directors with the Board authorized compensation and benefits.
                           However, there was no Board authorization for $6,000 payments
                           made by the District into the tax shelter annuities (TSA) of the
                           Assistant Superintendent of Elementary Education and the Director
                           of Human Resources or for a $3,000 payment made into the TSA of
                           the Assistant Superintendent of Administrative Services. Although
                           the Superintendent approved these payments, District officials did
                           not have any documentation showing that the Board authorized
                           these payments.

                           There was no authority for the above payments; however, the same
                           three individuals may not have received the full level of benefits that

                           9
                              The former Superintendent provided us with a copy his 2002-03 leave record
                           from his personal files, but we had no way to verify that this was a copy of the
                           District’s official leave record for him. He told us that he did not have any leave
                           records for the 2000-01 or 2001-02 fiscal years.
                           10
                              The Board adopted this policy on Employee Benefits for Non-Affiliated
                           Personnel on January 11, 1993.

 18       OFFICE OF THE NEW YORK STATE COMPTROLLER
     were provided for in the LAA agreement. The LAA agreement calls
     for the District to make annual contributions toward group universal
     life insurance and to a group 403(b) plan (TSA). The agreement
     requires the District to contribute $3,200 annually, less .5 percent
     of the employee’s base salary toward universal life insurance. Any
     additional amount not needed to meet the minimum universal life
     insurance coverage prescribed by the agreement must be directed
     toward either additional universal life insurance or a group 403(b)
     plan. The agreement also calls for the District to participate in an
     employer matching 403(b) tax shelter annuity program by making
     an annual contribution for each employee. In 2005, the District’s
     required matching contribution was .75 percent of each employee’s
     base salary.

     The District paid the full $3,200 for group universal life
     insurance and the group 403(b) plan for both the Director of
     Human Resources and Assistant Superintendent of Administrative
     Services without reducing the benefit by .5 percent of the employee’s
     base salary. Though the failure to make this necessary deduction
     resulted in an overpayment, this was more than offset by the District
     not making a matching contribution for either employee (.75 percent
     of base salary) to the 403(b) TSA program. In addition, the District
     paid $1,750 for group universal life insurance for the Assistant
     Superintendent of Elementary Education, but it did not contribute
     the remaining portion of the allowance toward additional universal
     life insurance or the 403(b) plan. The District also did not make a
     matching contribution for this individual. If benefits had been paid
     in accordance with the LAA agreement, the Director of Human
     Resources, Assistant Superintendent of Administrative Services
     and Assistant Superintendent of Elementary Education could have
     received additional life insurance coverage or 403(b) contributions
     in the amount of $286, $257, and $1,734, respectively.

     The Director of Human Resources explained that the contributions
     for these employees deviated from the provisions of the LAA
     agreement because they were non-affiliated personnel. It was his
     understanding that the non-affiliated personnel were supposed to
     receive the full $3,200 allowance (without a .5 percent reduction) for
     group universal life insurance and the group 403(b) plan, but that they
     were not entitled to the matching 403(b) contribution. He told us
     that the Assistant Superintendent of Elementary Education received
     only $1,750 of the $3,200 allowance due to an error or oversight in
     processing the allowances. Officials were not able to provide us with
     a Board policy or resolution indicating the Board intended to modify
     this provision of the LAA agreement for non-affiliated personnel.



DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                19
                                                                      19
                          The failure to compensate employees in accordance with the terms
                          of authorized Board policies and contracts represents a significant
                          weakness in internal controls over payroll processing and demonstrates
                          the need for the Board to exercise additional oversight concerning
                          this function.

Former Board Member       Management must show leadership in carefully safeguarding the
                          public resources that are entrusted to them by establishing clear
                          policies and procedures to govern operations, communicating
                          these broadly, and ensuring that all employees comply with these
                          policies and procedures. Management must act with the highest
                          ethical standards and must adhere to the same rules and guidelines
                          they expect all other staff to follow. Personnel responsible for
                          carrying out Management’s policies should not be impeded in the
                          performance of their duties by supervisory override of established
                          procedures and should not be made to feel pressured to deviate from
                          rules that Management has adopted. The District’s internal control
                          environment should include a mechanism by which employees can,
                          without fear of retribution, alert Management to instances where
                          rules have been broken or procedures not followed.

                          A former member of the Board received health insurance coverage
                          without making the required contributions. Although the District’s
                          internal controls over health insurance billing worked effectively
                          in making District staff aware of a change in the amount that it
                          should bill the Board member for his coverage, we were informed
                          that the prior Superintendent overrode these controls by instructing
                          subordinate staff not to send bills to the Board member. As a result,
                          the District incurred $44,283 in insurance costs without receiving
                          reimbursement from the covered Board member.

                          Even when not provided for in a collective bargaining agreement,
                          it has been a longstanding practice of the District to offer
                          continued health insurance coverage to the surviving spouse and/or
                          dependent(s) of a District employee who dies. The surviving spouse
                          or dependent is required to pay the same premium contribution as
                          the employee paid prior to his or her death.11 The District allows

                          11
                            OSC has expressed the opinion that there is no authority under General Municipal
                          Law (GML), Section 92-a, outside of collective bargaining (or other employment)
                          agreements, and COBRA, to provide health insurance at school district/local
                          government expense for other than officers, employees, retirees and their families.
                          General Municipal Law 92-a does not authorize coverage for the surviving spouse
                          and dependents of a deceased former employee (See 1980 Op St Comp No. 80-512;
                          Op Atty Gen [Inf Ops] 85-19). As noted in this report, the Board has now added
                          provisions in its collective bargaining agreements to provide for this benefit.




 20      OFFICE OF THE NEW YORK STATE COMPTROLLER
     for this continued coverage for up to three years after the death of
     the employee. After three years, the surviving spouse may elect to
     continue the coverage through the COBRA program12 for three more
     years, but must pay 100 percent of the premium. In addition, pursuant
     to General Municipal Law, the District provides health insurance
     coverage to Board members. Board members who request such
     coverage are required to pay 100 percent of the cost of the insurance
     premium.

     The continued insurance benefits received by one former Board
     member were not provided for in the collective bargaining
     agreement of his deceased spouse, who was a former District
     employee, and deviated considerably from the unwritten policy for
     extended coverage that was described to us by District staff. The
     Board member in question was in office from July 1, 1992 to July
     11, 2006 and served as Board President from July 1999 to June
     2003. His wife was employed by the District from September 1990
     until her death in September 1997. Before her death, she received
     insurance coverage for herself and her family under the District’s
     Teacher’s Aide employment contract and was required to contribute
     approximately 8 percent of the premium for health and prescription
     drug coverage. According to past practice, the Board member as
     her surviving spouse would be allowed to continue the insurance
     coverage for himself and his dependent for three years at the 8 percent
     contribution rate.

     Beginning in September 1997, the District billed the Board member
     quarterly at the 8 percent contribution rate. He received and paid
     these quarterly billings for the next three years. District records
     indicate that insurance coverage for the Board member and his
     dependent continued until December 31, 2005, an additional five
     years and three months. However, during this time, the Board
     member received and paid only five quarterly bills for a total
     of $1,021. Moreover, these five billings were at the 8 percent
     contribution rate rather than 100 percent of the premium due. The
     Board member received and paid only one other insurance bill from
     the District. This final bill, which totaled $2,664, was prepared in
     December 2005 at the time the District canceled the Board member’s
     insurance coverage. Like the earlier billings, this too was calculated
     using the 8 percent contribution rate. It represented the unpaid and
     previously unbilled balance at the 8 percent contribution rate for the
     period from October 1, 2000 to December 31, 2005.


     12
        Consolidated Omnibus Budget Reconciliation Act of 1985. The COBRA
     program’s intent is to provide health care coverage to employees or dependents
     whose coverage would cease due to termination, death of the covered employee or
     other changes in employment status.

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                       21
                                                                             21
                      In total the Board member paid the District $3,685 for 5 1/4 years
                      of health insurance coverage for himself and his dependent. Had he
                      been required to pay the full premium through either COBRA and/
                      or the coverage that the District offers to Board members under the
                      General Municipal Law, the total cost would have been $47,968, or
                      $44,283 more than the District received.

                      We attempted to determine the reason(s) that District policy had not
                      been followed with respect to the health insurance coverage this
                      Board member received. A member of the staff who was involved
                      in the health insurance billings stated that about the time the Board
                      member’s contribution was to increase from 8 percent of the
                      premium to the full premium (October 2000), the Board member
                      disputed that an increase was proper. He maintained that he was
                      entitled, under District policy, to pay at the 8 percent contribution
                      rate for four years rather than three. The staff member referred this
                      matter to the former Superintendent who directed him to “hold”
                      the future bills of the Board member. The former Superintendent
                      indicated that he would resolve the issue. The staff member stated
                      he approached the former Superintendent on several occasions
                      regarding the billing dispute and was told to hold the bills. (The
                      former Superintendent told us he does not recall ever instructing that
                      bills not be sent to the Board member.) The District continued to
                      prepare quarterly bills at the 8 percent contribution rate, but did not
                      (except as described below) send them to the Board member.

                      Despite staff’s understanding that they were not to send quarterly
                      bills to the Board member, five bills were inadvertently sent to him
                      between September 2001 and April 2003.13 As previously discussed,
                      all five of these bills were computed at the 8 percent contribution
                      rate and were paid by the Board member. The former Superintendent
                      retired from the District in June 2003; however, District personnel
                      continued to hold the Board member’s quarterly invoices and he
                      received no further billing until the December 2005 final bill. District
                      personnel stated that they continued to hold the bills after June 2003
                      because they had received no contrary instructions from the current
                      Superintendent who they believed was aware of the billing situation.
                      However, the current Superintendent told us that she only became
                      aware of the unresolved billing issue in late 2005 after the installation
                      of a new computerized billing system disclosed the Board member’s
                      unpaid balance. Upon learning about the matter, she consulted with
                      the District’s counsel and then instructed that the Board member be
                      billed for the balance due.14
                      13
                         These invoices were for September and December 2001, March 2002 and
                      January and April 2003.
                      14
                         While the District did send the Board member a bill in December 2005, the bill
                      was calculated using the 8 percent contribution rate instead of the required 100
                      percent contribution rate.

22   OFFICE OF THE NEW YORK STATE COMPTROLLER
                       When the Board was advised that District policy had not been
                       followed and that the Board member in question should have been
                       billed and required to pay substantially more for continued health
                       insurance, the Board asked its counsel to conduct an investigation.
                       The District also hired an independent auditor to perform an agreed-
                       upon procedures engagement to quantify the Board member’s unpaid
                       balance of the insurance costs. The District incurred legal fees
                       of about $52,000 for the investigation, research and other work
                       conducted by its counsel related to the matter. The District also paid
                       its independent auditor part of a $15,100 fee for the engagement.15
                       The District referred this matter to the District Attorney for possible
                       criminal prosecution, but the District Attorney concluded there was
                       insufficient evidence of criminal intent on the part of the Board
                       member. The District also considered pursuing civil actions against
                       the Board member, but it ultimately decided, upon the advice of
                       counsel, that it was unlikely that a civil claim to recover the funds
                       would be successful. The Board member resigned in July 2006.

                       The Board adopted a written policy in August 2006 that clarifies
                       the benefits that will be provided to the surviving spouse and/
                       or dependents of a District employee or a retiree who dies while
                       receiving group health and dental insurance. The policy provides that
                       coverage for the surviving spouse and dependent(s) will continue
                       for one year after the employee or retiree dies at the same premium
                       contribution rate the deceased employee or retiree would have paid.
                       The Board also negotiated this provision into all of its collective
                       bargaining agreements since June 2006. The Board also adopted a
                       new code of ethics in June 2006, established an Ethics Committee in
                       January 2007 and adopted a whistleblower policy in February 2007.
                       The District provided training on these policies to its administrators
                       in August 2007.

Recommendations        2. The Board should review the payments provided to the former
                          Superintendent to which he was not entitled and take appropriate
                          action based on the results of its review.

                       3. The District should continue its efforts to obtain confirmation
                          from the insurance company that the District will be able to
                          recover the entire amount of the insurance premiums it has paid
                          for the former Superintendent’s split-dollar life insurance policy.

                       4. District officials should retain critical payroll information for the
                          length of time required by the State Education Department.



                       15
                          The fee paid to the independent auditor also included other services not connected
                       to this incident.

                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                             23
                                                                                                     23
                      5. The Board should periodically monitor employee compensation
                         and benefit payments to ensure that they are consistent with
                         applicable Board authorized employment contracts, collective
                         bargaining agreements, policies and/or resolutions.

                      6. District officials should not provide benefits that the Board has
                         not authorized.




24   OFFICE OF THE NEW YORK STATE COMPTROLLER
Student Laptop Computer Program

       The District started a voluntary laptop computer program for high
       school students Grades 10 through 12 at the beginning of the 2000-
       01 school year. As part of this program, the use of laptop computers
       was integrated into academic areas. Each student participant, starting
       in Grade 10 or 11, is provided a laptop computer for their remaining
       high school years. The District leases the computers from Onondaga-
       Cortland-Madison (OCM) BOCES and then the student and his/
       her parent sublease it from the District for $900. When the student
       graduates, they are allowed to keep the computer. The District
       also had an arrangement with an outside organization known
       as the Liverpool Independent Foundation for Excellence16 to
       help subsidize those families who otherwise could not afford the
       program.

       Approximately 3,400 students participated in the program from
       June 2000 through December 31, 2006. For the 2006-07 school
       year about 1,540 students were enrolled in the program.17 District
       records indicate the District collected over $550,000 in program
       fees (including fees for repairs and other miscellaneous charges)
       from July 1, 2005 to December 31, 2006.

       A good system of internal controls ensures that District officials
       account for laptop computers received and distributed to students and
       staff. District officials need to monitor and ensure laptop computers
       are properly inventoried, safeguarded and accounted for; lease
       payments are promptly collected and delinquents enforced; and
       receivable records for lease payments due are maintained accurately.
       District officials need to ensure that there is a segregation of duties so
       that no single individual controls all phases of a transaction whether it
       be receiving, inventorying, distributing and accounting for laptops or
       collecting, depositing and reporting laptop lease receivables.

       The District did not have adequate inventory controls to account for
       laptop computers obtained by the District for the student laptop
       program. The lax controls resulted in the District being unable
       to locate 32 laptops18 (costing about $38,400) and allowed some

       16
           See our finding entitled “Donation of District Assets” for further discussion
       about this organization.
       17
          The District began a two-year phase out the laptop lease program in the 2007-
       08 school year.
       18
          Twenty laptops were not recorded in the inventory records and were not found
       at the District. Eleven spare laptops that were recorded in the records could not
       be found. Another laptop that was assigned to a student who dropped out of the
       program could not be located.
  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                         25
                                                                                 25
                           students to leave the program with their computers while still having
                           an unpaid balance. In addition, the District did not properly segregate
                           cash handling and recordkeeping duties related to lease payments
                           and maintain accurate laptop lease receivable records. The District
                           also did not actively enforce lease provisions when parents failed to
                           make required payments.

Inventory Controls         The District’s inventory of laptop computers represents a significant
                           investment of resources. It is essential that District officials ensure
                           that computers owned or leased by the District are protected from
                           loss or misuse. This protection can be accomplished by adopting
                           policies, maintaining complete and accurate inventory records,
                           conducting periodic inventories and establishing other safeguards.

                           Ideally, one person (the property control manager) should
                           have overall responsibility for tracking capital assets, including
                           computers, and for the accuracy and usefulness of the records.
                           The person in charge of the records should be independent of the
                           purchasing process and have restricted access to the property/assets.
                           Periodic physical inventories of capital assets should be conducted
                           to help ensure the accuracy and completeness of recorded amounts,
                           and to assist in assessing the condition of the assets. The results of
                           these counts should be compared to detailed inventory records and
                           any discrepancies investigated.

                           District officials did not establish policies and procedures that clearly
                           assign responsibility for inventory control over laptop computers,
                           and describe how staff should safeguard the assets and maintain
                           accurate records. Staff members in the District’s Technology Office
                           are responsible for receiving the laptop computers, assigning them
                           to students or specific locations within the District and maintaining
                           the inventory records. There is no independent verification of their
                           work regarding the inventory and records. District officials do not
                           perform periodic physical counts of laptop computers in the District’s
                           possession and reconcile those counts with inventory records. We
                           found the following deficiencies in the District’s tracking system for
                           laptop computers:

                               •   During the summer of 2005, the District acquired 600
                                   laptop computers, which were shipped directly from
                                   the manufacturer to the District. Some were assigned to
                                   students and others were retained by the District and used
                                   as spares. We compared the serial numbers listed on the
                                   manufacturer’s invoice to inventory lists maintained by the
                                   District’s Technology Department and found that 34 laptops,
                                   valued at approximately $41,000, were not included in the
                                   District’s inventory records. Officials were subsequently able

 26        OFFICE OF THE NEW YORK STATE COMPTROLLER
                                      to account for 14 computers but were unable to physically
                                      locate the remaining 20, costing about $24,000, or explain
                                      why they were not included in the inventory records.

                                  •   Inventory records show 165 spare laptops19 on hand as of May
                                      2007. We attempted to physically view these spare laptops,
                                      but officials could not locate 11 of them (about 7 percent),
                                      valued at about $13,200.

                                  •   District officials provided us with a list of 82 students who
                                      dropped out of the program before paying the full amount
                                      due for their laptops. We tested records for eight of those 82
                                      students and found that three laptops (costing about $3,600)
                                      were still listed as assigned to the students even though they
                                      had dropped the program. There was no indication they had
                                      turned their laptops in to the District. In addition, one other
                                      laptop (costing about $1,200) was no longer assigned to the
                                      student, but the inventory listing did not show its location.
                                      Each of the other four laptops was either available for our
                                      inspection or assigned to other students.

                             The District’s failure to maintain accurate inventory records
                             and perform periodic physical inventories results in a lack of
                             accountability over the laptop computers. As a result, the District
                             faces an increased risk that laptop computers could be lost or stolen.

Segregation of Duties        Parents have various options for making their monthly laptop
                             lease payments. They can send payments to a post office box (lock
                             box), register to have monthly payments automatically withdrawn
                             from their personal bank account by means of Automated Clearing
                             House (ACH) payments, or they can make payments at the District.
                             When payments are made to the lock box or by ACH, the money is
                             deposited directly into a District bank account and the bank forwards
                             the payment information.

                             While internal controls over lock box and ACH payments were good,
                             there were weak controls over payments collected at the District. A
                             secretary received laptop lease payments in the Technology Office
                             and went to the high school weekly to collect payments and other
                             related fees received by staff in the high school Technology Office.
                             She combined the monies collected at the high school with the money
                             she received at the District Office, prepared a deposit transmittal

                             19
                                Each year, the District purchases more laptops than needed for the number of
                             students entering the program that year. District officials informed us that the spare
                             laptops are leased to students who enter the program late, so they can have the same
                             type of laptop as their classmates. Some of the spare laptops are also used to replace
                             lost, stolen or broken laptops, or for parts.
                        DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                              27
                                                                                                            27
                          form and remitted the form and monies to the Business Office for
                          deposit. The secretary also recorded the payments in laptop lease
                          receivable records, which are on a separate stand-alone computer
                          system maintained by the Technology Department.

                          Although staff in the Business Office was responsible for making the
                          deposits and recording the receipts in the central accounting records,
                          there was no independent reconciliation process to make sure that
                          payments recorded in the laptop lease receivable records agreed
                          with the monies received and deposited by the Business Office. As a
                          result, District officials have no assurance that all cash receipts have
                          been accounted for properly. When one individual handles cash and
                          maintains the records with no oversight, District assets (cash) are at
                          considerable risk as the person has the opportunity to take the cash
                          and conceal the theft by posting the receivable as having been paid or
                          otherwise adjusting the records.

                          To address this risk, we tested May 2006 receipts recorded in the
                          laptop receivable records maintained by the Technology Office
                          and traced to corresponding bank deposits. Our tests of over 1,300
                          receipt transactions, totaling about $40,000 disclosed no substantial
                          differences between deposits and recorded receipts. However, our
                          review of the records did identify various record keeping deficiencies
                          and inaccuracies as discussed below.

Record Keeping            Good internal controls require that complete and accurate accounts
                          receivable records be maintained to account for the District’s financial
                          transactions, and to allow the District to effectively monitor and
                          enforce amounts due to the District. We found that adequate internal
                          controls and recordkeeping procedures had not been established for
                          laptop lease receivables. As a result, the receivable records were
                          inaccurate. Specifically, we noted the following conditions:

                              •   One student receivable account was credited as though the
                                  student paid $10,025 when, in fact, four $25 payments or
                                  $100 had actually been paid. This posting error occurred
                                  in April 2005; however, District officials were not aware of
                                  the error until we brought it to their attention in April 2007.
                                  To correct this erroneous payment, the secretary deleted the
                                  $10,025 payment and entered the correct amount of $100.
                                  The system did not create an audit trail. Our testing of
                                  other accounts disclosed that when the secretary needed to
                                  make adjustments to reduce a receivable account balance,
                                  she sometimes recorded fictitious payments because the
                                  computer system did not provide any other mechanism for
                                  posting non-cash adjustments to the receivable records.


 28       OFFICE OF THE NEW YORK STATE COMPTROLLER
        •   In May 2006, deposits totaling $459 could not be linked to
            a student account because the source of the cash was not
            identified. There were also six receipts totaling $335 recorded
            in student laptop lease receivable records that we were unable
            to trace to the bank deposits. While it is possible that these
            recorded receipts make up some of the unidentified cash
            deposits, it was not possible to confirm this because of the
            lack of a clear audit trail from receipts to deposits.

        •   Payments recorded in the laptop lease receivable records did
            not always reflect the actual dates the monies were received.
            For example, 100 receipts totaling $2,500 were deposited on
            April 21, 2006, but were recorded in the individual receivable
            records as received on June 1, 2006.

        •   The lease agreement between the District and the parent/
            student includes a provision that allows the District to
            confiscate the laptop if the parent fails to make the required
            payment for two months. We reviewed laptop lease receivable
            balances for students who enrolled in the laptop program in
            2003 and still had an outstanding receivable balance due as
            of March 1, 2007 to determine if the students were allowed
            to keep their laptop when they left the District. According
            to the records, 30 students had outstanding balances between
            $300 and $700 as of March 1, 2007, and had either graduated,
            transferred or dropped out the laptop program. The total
            outstanding balance for these students in the records was
            about $14,250.

            Six out of these 30 laptops were returned to the District and
            available for our inspection in the high school Technology
            Office. An employee told us that the District has recovered
            three of the other laptops; however she had no records to show
            their current location. The remaining 21 laptops, costing about
            $27,000, were not available for our inspection and according
            to the District’s inventory records, were still assigned to the
            students who had left the program.

            After we discussed this with staff in the Technology Office,
            they researched their records and informed us that that several
            of the receivable balances in the records were inaccurate
            because the laptops had been returned to the District and
            one laptop had been stolen. The Director of Technology and
            her secretary then adjusted the individual receivable records
            for these students to zero out their receivable accounts. We
            reviewed four of the accounts after the adjustments were
            made and found that the secretary posted payments of $475 to

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY               29
                                                                     29
                                       $700 to reduce the receivable balances to zero, even though
                                       no corresponding payments were actually received by the
                                       District. Additionally, these adjustments were made in March
                                       or April 2007, but they were backdated in the records to as
                                       far back as August 2004 and the adjustments were made to
                                       zero out the account balances with no regard for when the
                                       computer was turned in or stolen and how much the parent
                                       still owed at that point in time.

                                  •    During our comparison of May 2006 bank deposits and
                                       receipts posted to the individual laptop lease receivable
                                       records, we noted that the individual receivable records had
                                       not been adjusted for the checks that were returned by the
                                       bank for insufficient funds (ISF). As a result, the balances
                                       due for some students were understated in the records.
                                       When we brought this to the attention of the secretary who
                                       maintained the individual receivable records, she reviewed
                                       the bank statements and determined that from July 1, 2005
                                       through December 31, 2006, $1,28920 had been credited to 53
                                       individual receivable accounts as paid when the checks had
                                       actually been returned by the bank as ISF checks. Subsequent
                                       to discovering this, the secretary made correcting entries in
                                       February 2007 – to reverse the payments and increase the
                                       amount of these students’ outstanding receivable balances by
                                       the amount of the ISF checks.

                                  •    From July, 1 2005 through December 31, 2006, the District
                                       made 23 refunds for overpayments of laptop fees totaling
                                       $1,155. The amounts refunded were not reflected in the
                                       individual student’s receivable accounts, so the receivable
                                       accounts reflected a credit balance rather then a zero balance.
                                       The District did not update the receivable accounts for these
                                       refunds until March 2007 – during the course of our audit.

                            Overall, we identified recordkeeping errors totaling about $14,500.
                            The failure to maintain accurate receivable records and the lack
                            of a clear audit trail weakens controls and increases the risk that
                            fraudulent transactions could be entered into the system and not
                            detected.

Enforcement of Delinquent   District officials did not routinely mail delinquency letters to parents
Lease Payments              who did not make their laptop lease payments. In addition, although
                            the laptop lease agreements state that the District will confiscate the
                            laptop for failure to make payments for two months, the Director
                            of Technology stated the District rarely enforces the provision to
                            confiscate laptops when parents fail to make the lease payments.
                            20
                                 We verified five of these ISF checks.

 30       OFFICE OF THE NEW YORK STATE COMPTROLLER
                        The failure to enforce delinquent laptop lease payments deprives the
                        District of monies that could be used to fund the program. Also,
                        when the District does not enforce lease payments, an inequity
                        ultimately results because not all parents are paying their fair share
                        of the costs.

Recommendations:        7. The Board should establish a comprehensive capital asset policy
                           that communicates its objectives concerning the duties, records
                           and procedures required for protecting the District's capital
                           assets.

                        8. To the extent possible, District officials should separate the
                           duties of maintaining laptop inventory records from those
                           employees responsible for the custody of the laptops.

                        9. District officials should ensure that proper inventory records are
                           maintained for laptop computers and periodic physical inventories
                           are conducted.

                        10. District officials should investigate the 32 missing laptop
                            computers.

                        11. Until the District’s laptop computer program is phased out,
                            District officials should segregate the duties of collecting laptop
                            lease payments and maintaining the lease receivable records. If
                            proper segregation of duties is not possible, timely supervisory or
                            independent review of the work performed and investigation into
                            unusual items and variances is necessary. In addition:

                               •   District officials should ensure that accurate laptop lease
                                   receivable records are maintained.

                               •   District officials should ensure that the computer program
                                   used to record laptop lease receivables provides a clear
                                   audit trail and that the system is modified so that
                                   receivable adjustments can be recorded as such and not as
                                   payments.

                               •   District officials should ensure that cash receipt listings
                                   are generated for each deposit to help provide a clear audit
                                   trail from laptop lease receipts to deposits.

                               •   The Board and District officials should enforce
                                   delinquent receivables in accordance with the laptop lease
                                   agreements.



                   DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                31
                                                                                         31
                           Donation of District Assets
                             The State Constitution prohibits school districts from making gifts or
                             loans of school district money or property to or in aid of any private
                             individual or group. We found that the District improperly donated
                             District assets, including cash and technology equipment, to outside
                             organizations. From 2004 to 2006, the District donated the proceeds
                             from the sale of 28 new laptop computers to a nonprofit corporation.
                             The District had poor controls over the sale of these laptops and
                             the related disbursement of the proceeds. In 2004, 57 Airport base
                             stations21 acquired by the District through OCM BOCES were
                             improperly transferred to the Syracuse Diocese Catholic Schools. The
                             District was also unable to locate 65 other Airports during a physical
                             inventory in 2007. Lastly, the District violated the State Constitution
                             when it passed $85,080 in State Aid monies it received on to various
                             outside organizations.

Sale of Laptop Computers     All money received by the District, including money received
                             from the sale of District assets, should be properly recorded in
                             the District’s accounting records and deposited into a District bank
                             account. Generally, no disbursements of District funds should be
                             made without the audit and approval of the related claim by the
                             claims auditor. We found the District violated the State Constitution
                             when it donated the proceeds from the sale of 28 new laptop
                             computers to a nonprofit corporation. Cash and checks received
                             from the sale of the laptops were not deposited into a District bank
                             account or recorded in the District’s accounting records. Instead,
                             the cash and checks were given directly to the nonprofit corporation.
                             This circumvented the District’s regular disbursement procedures,
                             entirely bypassing the claims audit and approval process.

                             The computers used in the District’s student laptop program were
                             leased by the OCM BOCES on the District’s behalf, and the District
                             subsequently reimbursed the OCM BOCES. The computers were
                             delivered directly to the District. The District generally ordered
                             between 400 and 600 laptop computers each year for the student
                             laptop program. The District had an informal side arrangement with
                             the manufacturer in which the District would receive one free laptop
                             for every 60 laptops ordered. For example, if the District ordered 600
                             laptops, it would receive 610 laptops, for the price of 600.

                             In 2004, 2005, and 2006 the District received eight, 11, and nine,
                             respectively, (28 in total) additional “free” laptops from the
                             21
                                An Airport base station establishes a wired connection to the Internet or a network
                             and wireless connections to client computers. A base station enable up to 50 users
                             to connect wirelessly to the intranet simultaneously.

 32       OFFICE OF THE NEW YORK STATE COMPTROLLER
     manufacturer.22 The Director of Technology informed us that parents,
     staff, teachers, and others purchased the computers for $900 each.
     The proceeds were given to the Liverpool Independent Foundation
     for Excellence (LIFE).

     According to the District’s website,23 LIFE was formed in 1999 as
     an independent nonprofit corporation to raise, manage and distribute
     private resources for the benefit of District students and schools. The
     Director of Technology is a member of LIFE. LIFE assists students
     with financial needs by subsidizing those families who want their
     child to participate in the laptop program but cannot afford the $900
     usage fee. Parents of students eligible for the free and reduced lunch
     program pay a lower usage fee for their computer and the remaining
     costs are to be paid by LIFE.24 There is no written agreement between
     the District and LIFE outlining the organization’s responsibilities and
     obligations with respect to its subsidization of the laptop program.
     The District does not regularly send bills to LIFE and it does not
     maintain records showing the balance due from LIFE at any given
     point in time. Based on our review of available records, we estimate
     that LIFE owed the District about $30,000 in subsidy payments at
     December 31, 2006; however, we were unable to verify this given the
     inadequate recordkeeping.

     Receipts for the sale of the laptops and the subsequent payments to
     LIFE did not go through the District’s normal collection, deposit and
     claims audit and payment processes, and the transactions were not
     recorded in the District’s central accounting records. Checks for the
     purchase of these computers were made payable to LIFE rather than
     the District. The Director of Technology sold the computers and then
     turned the cash and checks over to the Treasurer of LIFE. She did not
     obtain a receipt from LIFE to document the transfer of the funds. Our
     review of the check copies and duplicate receipts for 2005 and 2006
     indicates that the Technology Office collected $18,000 ($900 each)
     for the 20 free computers received during those years.

     Although we did not test all the laptop sales from 2004 and prior
     years, we did note that an employee of the District’s Technology
     Office made two payments of $300 in September 2004 and
     March 2005 to purchase one of the laptops. We found no evidence

     22
        The District also received free laptops prior to 2004, but we did not extend our
     testing to verify the number of laptops received in prior years.
     23
        At the time of our audit fieldwork, the District’s website had a section describing
     LIFE’s Vision, Mission and Goals.
     24
         Parent lease payments total $900. Parents of students who enter the program
     during their sophomore year generally pay $25 per month for three years. Parents of
     sophomores who qualify for the free and reduced lunch program are required to pay
     $5 and $15 per month, respectively, with the remaining costs subsidized by LIFE.

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                             33
                                                                                   33
                           that this employee made the third payment of $300.25 Our review
                           also disclosed that in 2003, the District issued a check to LIFE in
                           the amount of $11,500.26 Supporting documentation, including the
                           purchase order, indicates that the payment was made for the purchase
                           of nine laptops from LIFE. This is a questionable transaction since
                           the nine computers were free computers that the District received
                           from the manufacturer. In essence, the District paid LIFE for
                           computers, which the District already owned.

                           The Board President stated that he was not aware that laptop
                           computers were being donated to the District by the manufacturer
                           and that he also was not aware that these computers were at times
                           sold with the proceeds going to LIFE. The Superintendent was aware
                           that the free laptops were sold and that the proceeds were given to
                           LIFE, but stated that she did not know the specific details about the
                           arrangement.

                           A major weakness in internal controls exists when financial
                           transactions are not properly recorded in District records and a
                           District employee can sell District assets and disburse the proceeds
                           with little or no oversight.

                           While the goal of LIFE to assist the District in providing laptop
                           computers to financially disadvantaged students is a worthy one, the
                           District’s donation of money to LIFE was improper and prohibited
                           by the State Constitution. Even though the District received these
                           laptops at no charge, they were District assets. There is no authority
                           to donate money derived from their sale to any private individual or
                           entity without receiving fair value in return.

Airports                   It is the responsibility of District officials to ensure that computer
                           and technology equipment owned or leased by the District is protected
                           from loss and is used effectively. Out of 192 Airport base stations
                           (Airports) acquired by the District through OCM BOCES, 122, or
                           64 percent, were not on hand at the District in 2007. Fifty-seven were
                           improperly transferred to the Syracuse Diocese Catholic Schools
                           (Diocese). An attorney for the Diocese stated that the Airports were
                           installed at Diocese schools in the summer of 2004. This occurred
                           during a time when the former Superintendent was serving as the



                           25
                              The employee told us that he did make another $300 payment by check, but
                           LIFE never cashed the check. He was unable to provide documentation showing
                           the payment.
                           26
                              While the Technology Office routinely sold these laptops for $900 each and gave
                           the proceeds to LIFE, in this case, the District paid LIFE about $1,278 each for the
                           laptops. The laptops were used by special education teachers.


 34        OFFICE OF THE NEW YORK STATE COMPTROLLER
     Superintendent for the Diocese.27 In addition, the District was not
     able to locate 65 of the remaining Airports during a physical inventory
     conducted in 2007. The cost of these 122 Airports was about
     $22,000.

     In June 2003, the District entered into an arrangement with OCM
     BOCES to finance the lease of computer and technology equipment
     totaling $3.2 million. Although the equipment was delivered directly
     to the District for its use, OCM BOCES retained ownership of the
     equipment. Included in the arrangement were 150 Airports and 42
     “Wireless Mobile Labs,” each of which included one Airport. In total,
     the District acquired 192 Airports.

     In April 2007, the current Superintendent learned that some of the
     District’s technology equipment had been transferred to the Diocese.
     The District contacted the Diocese to confirm this and the Diocese
     provided the District with a listing of 70 Airports. The list included
     their serial numbers and the Diocese school where each one was
     located.28 These Airports were installed during the summer of 2004 as
     part of a laptop initiative at the Diocese. An attorney for the Diocese
     indicated that it was the Diocese’ understanding that the Airports were
     donated by the District to the Diocese and the equipment was not
     useable by the District.

     Staff in the District’s Technology Office did not record the Airports
     in their departmental inventory records when they were received
     because their individual cost was below the $500 threshold for
     recording assets. Consequently, the District did not have an
     inventory control record to help safeguard these assets. OCM
     BOCES was able to provide us with an inventory record showing
     the 192 Airports purchased on behalf of the District. We compared
     serial numbers on the OCM BOCES record with the Diocese listing
     and found that 57 of the Diocese’ Airports had been acquired by and
     delivered to the District. When we asked the former Superintendent
     about the transfer of the Airports, he indicated that prior to the transfer
     taking place, the Director of Technology informed him that the
     Airports were considered surplus and were not going to be used by
     the District. We found no indication that the Board had declared these
     devices as surplus equipment or that the District intended to give or
     loan these Airports to the Diocese.

     The District conducted a physical inventory of its Airports during
     the spring of 2007 and could only locate 70 of the Airports. The


     27
        The former District Superintendent became the Superintendent of the Diocese in
     November 2003.
     28
        The Airports were located in 13 different Diocese schools.

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                         35
                                                                               35
                          remaining 65 Airports were not found.29 When the District became
                          aware that its equipment had been inappropriately transferred to
                          the Diocese, officials contacted the State Police, and the case was
                          referred to the District Attorney.

State Aid Payments        The District enters into agreements with the OCM BOCES to
                          receive various services, including environmental education to
                          enhance the science curriculum in grades K-8, and a planetarium
                          service for grades K-12. The District also subscribes to a program
                          for Arts-In-Education (AIE) through the Oswego County BOCES
                          (Oswego BOCES). The AIE program helps school districts integrate
                          music, theater, dance, writing, and visual and media arts into the
                          classroom. By contracting for these services through a BOCES,
                          school districts are eligible to receive State Aid for a portion of
                          the program costs. The State Aid reimbursement for any given
                          school year is returned to the school district during the following
                          school year. The District violated the State Constitution when it
                          passed $85,080 in State Aid monies it received on to various outside
                          organizations.

                          During the 2004-05 fiscal year, various organizations such as
                          Parent Teachers Associations, Program in the Arts for Children
                          (PAC), LIFE, and extra-classroom activity groups coordinated
                          with the District and the Oswego and OCM BOCES to support
                          various student activities. These outside groups provided funds
                          to cover the purchase of admission tickets for students to attend
                          performances or exhibitions or to pay for in-school performances
                          or presentations. The District recorded this funding as revenue
                          (gifts and donations). BOCES contracted with and paid the service
                          providers (e.g. orchestra, ticket vendor), after which the District
                          reimbursed BOCES the cost plus an administrative fee. The
                          following year, the District received BOCES State aid to partially
                          reimburse it for services purchased through BOCES. The District
                          then reimbursed the outside organizations 46 percent of the costs they
                          incurred to finance the activity.

                          For example, during the 2004-05 fiscal year, LIFE sponsored
                          a concert by the Syracuse Symphony Orchestra (SSO) to raise
                          money for the student laptop subsidy program. On behalf of the
                          District, the Oswego BOCES hired and paid the SSO to perform at
                          the District. The District reimbursed BOCES the cost of the concert
                          ($15,000) plus the BOCES administrative fee of 9.5 percent ($1,425)
                          through its normal payment process. LIFE subsequently reimbursed
                          the District $16,425 for the cost of the concert and administrative fee.

                          29
                            The District acquired 192 Airports. Fifty-seven were transferred to the Diocese
                          and 70 were found at the District. Sixty-five Airports remain unaccounted for.

 36       OFFICE OF THE NEW YORK STATE COMPTROLLER
     The payment from LIFE was recorded as gifts and donations by the
     District. During the next fiscal year (2006-07), the District received its
     BOCES Aid, which included partial reimbursement for the District’s
     cost for the concert. The District then paid LIFE $6,900, or 46 percent
     of the $15,000 concert cost.

     In 2005-06, the District reimbursed LIFE and other organizations a
     total of $85,080 as illustrated in the following table:30

                 Organization                             Amount Paid
      Extra-classroom Activity Groups                                $32,737
      PTOs, PTAs, PFOs, and PTFOs31                                   28,763
      PAC                                                             16,680
      LIFE                                                             6,900
                                  Total                              $85,080

     As with the payment to LIFE, we noted that memos and/or claim
     forms related to the payments to the other organizations show that it
     was the District’s intent to reimburse these organizations a portion of
     the BOCES aid the District received. Community, student and parent
     organizations may donate money to help the District fund programs
     in the arts and sciences, and the District may acquire the programs
     through a BOCES, but any resulting State aid belongs to the District,
     and not the organization that initially donated the funds.

     The District’s Director of Arts indicated that the AIE programs are a
     good use of money and that the organizations contribute much to the
     District through their volunteer efforts. He believes that when these
     organizations share in the BOCES aid received by the District they
     are able to use the funding to help pay for future activities for the
     District.

     While the State aid turned over to these organizations may very well
     be donated to the District the next year for additional programs, there
     is no guarantee that this will occur. Once the District pays these
     organizations a portion of the State aid it received, it has little, if any
     control over how the funds are spent by the organizations. District
     officials indicated that this funding arrangement has been a long-
     standing practice and the District took steps to change this practice
     after we brought it to their attention.


     30
        $77,490 was related to AIE, and $7,590 was related to environmental education
     and planetarium services.
     31
         Parent Teacher Organization (PTO), Parent Teacher Association (PTA),
     Parent Faculty Organization (PFO), Parent, Teacher and Faculty Organization
     (PTFO)

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                         37
                                                                               37
Recommendations          12. The District should discontinue the practice of gifting public
                             funds to private organizations.

                         13. District officials should ensure that all monies collected by
                             District employees are properly recorded and deposited into a
                             District bank account. Any payment of related claims should be
                             subject to audit by the claims auditor.

                         14. The District should seek to recover the 57 Airports now in the
                             possession of the Diocese. If the Airports are not needed by the
                             District and the Board chooses to allow the Diocese to retain the
                             Airports, then it should seek to recover their current fair market
                             value.

                         15. The District should investigate the 65 missing Airports and
                             establish equipment control procedures to help protect the
                             District’s assets and ensure the timely detection of lost or stolen
                             items.

                         16. The District should discontinue the practice of remitting BOCES
                             aid money it receives to outside organizations.




 38      OFFICE OF THE NEW YORK STATE COMPTROLLER
         Extra-Classroom Activity Funds

              The Regulations of the Commissioner of Education (Regulations)
              require each school district’s board of education32 to make rules and
              regulations for the safeguarding, accounting, and auditing of all extra-
              classroom activity fund monies received. Generally, extra-classroom
              activity funds are raised through charges for, by, or in the name of
              organizations whose activities are conducted by students. Students
              raise and spend these funds to promote the general welfare, education,
              and morale of all students, and to finance the normal and appropriate
              extracurricular activities of the student body.

              A central treasurer for extra-classroom activity funds is appointed by
              the Board and is responsible for maintaining custody of, disbursing
              and accounting for all extra-classroom funds. Each activity should
              have a faculty advisor and an activity treasurer, who is a student,
              elected or appointed to function as the treasurer for the activity. The
              activity treasurer receives funds raised by students and deposits the
              funds with the central treasurer, who ensures the monies are deposited
              in the bank. Funds should only be disbursed by the central treasurer
              upon receiving a payment order signed by the activity treasurer
              and faculty advisor along with the supporting documentation
              (e.g., invoice). For each activity, both the central treasurer and the
              activity treasurer maintain their own set of records showing receipts,
              expenditures and cash balances and the records should be periodically
              reconciled.

              The District’s extra-classroom activity accounts recorded more than
              $785,000 in receipts and disbursements during the 2005-06 fiscal year
              and had a combined cash balance of approximately $220,000 as of
              June 30, 2006. The majority of the District’s extra-classroom activity
              occurs in the high school, which had 76 extra-classroom accounts as
              of June 30, 2006.

Policy        Although the Board adopted an extra-classroom activity fund policy
              in June 2005, the District did not develop the detailed procedural
              guidance required by the policy until September 2007. Also, the
              District had several activities that were not run by students and
              therefore should not have been accounted for in the extra-classroom
              activity fund. In addition, the Board did not receive useful reports
              to oversee extra-classroom activities, cash receipts were not always
              deposited timely and the District’s control system over cash receipts
              failed to detect timely the theft of monies.
              32
                This Regulation applies to school districts that have a population of less than one
              million and an educational program beyond the 6th grade.

         DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                             39
                                                                                            39
                          The Board and District Management are responsible for the
                          protection and oversight of the District’s cash assets, including
                          activity fund monies. These responsibilities include adopting
                          policies and procedures that describe the method to be followed
                          in establishing an organization, the records that District personnel
                          and students must maintain, and the duties and control procedures
                          that they must follow to adequately safeguard activity fund monies.
                          Having a good system of internal controls over these funds helps
                          minimize the risk that errors or irregularities may occur and go
                          undetected.

                          While the Board had adopted an extra-classroom activity fund
                          policy in June 2005, District officials did not always comply with
                          the policy. The policy did not include detailed procedural guidance
                          for extra-classroom activities; however, it delegated the Assistant
                          Superintendent of Administrative Services with the responsibility
                          for establishing procedures to govern the establishment of an extra-
                          classroom activity, the receipt, deposit and payment of monies and
                          the related accounting requirements. Administrative regulations or
                          formal procedures were not established by the District to supplement
                          the policy until September 2007, after our audit period.33

Non-Student Club          According to Regulations, an extra-classroom activity is an
Activities                organization operating within a school district whose activities are
                          conducted by students and whose financial support is raised other
                          than by taxation or through charges of the Board. One of the intended
                          purposes of an extra-classroom activity is to allow students to operate
                          an activity and be involved in the financial management of that
                          activity. As a general rule, only activities having student officers, a
                          student membership, and an appointed advisor would qualify as an
                          acceptable extra-classroom activity.

                          The District received an external audit report and management
                          letter for the fiscal year ended June 30, 2003 that cited certain
                          inadequacies in the District’s internal controls over extra-classroom
                          activity funds. Among other things, the report pointed out that some
                          clubs within the extra-classroom activity fund did not appear to be
                          student-run organizations. Following an investigation conducted by
                          the District’s legal counsel, the Board took corrective action by
                          passing a resolution in January 2004 to disband the clubs cited in the
                          report.34 The District had the CPA firm conduct a follow-up review

                          33
                             The Board also updated its policy on extra-classroom activity funds in September
                          2007. The updated policy assigned the Superintendent with responsibility for
                          establishing administrative regulations.
                          34
                             The Board disbanded the LHS Club, Agenda Club and Stadium Club. The
                          District had previously disbanded the Guidance and Counseling Club, which was
                          also cited in the CPA’s report.

 40       OFFICE OF THE NEW YORK STATE COMPTROLLER
     in 2006. The CPA’s 2006 report identified additional internal control
     weaknesses related to extra-classroom activity funds and it included a
     recommendation that the District make a determination as to whether
     all of the existing clubs are truly extra-classroom clubs.

     Our audit of extra-classroom activity funds covering the period from
     July 1, 2005 to December 31, 2007 disclosed that the District’s extra-
     classroom activity funds still include numerous accounts that are
     not legitimate student activities. These accounts include various
     activities which are operated by parents, coaches, faculty and staff
     without benefit of student officers and/or student membership. For
     example, we reviewed club data sheets and/or club constitutions and
     bylaws and identified at least 17 athletic clubs that function more
     as booster clubs. The membership of these clubs is generally open
     to parents of team members and other interested parties and they
     contain no student officers. In fact, the bylaws for many of these
     clubs indicate that one of the qualifications for membership is that
     the person must be at least 19 years old. This would preclude most
     high school students from being members of the clubs. Additionally,
     District officials told us that these clubs are considered “satellite
     boosters,” and they are required to contribute 10 percent of their
     fundraising revenues to the “main booster club,” which is separate
     from the District.35 During 2005-06, the athletic clubs paid the main
     booster about $3,600.

     In addition to the booster clubs, several other activities are
     administered by faculty and staff with little, if any student
     involvement. In some cases, the activities are used to fund the
     District’s own operating expenses. For example, the PE Club data
     sheet listed the Athletic Director (and no students) as the only
     individual authorized to sign purchase orders and the membership
     includes all Phys Ed students at the Liverpool High school. Based
     on the nature of the PE Club’s revenues and expenditures, it appears
     that this activity is used to account for transactions that should be
     recorded in the District’s general fund. For example, this account
     was used to record revenues and expenses related to Sectional sports
     events. Currently, its main revenue source is from the sale of season
     sports passes. Expenditures were for items such as volleyball nets, ice
     machine repairs and display cases.

     In addition, the central treasurer maintains an operating expenses
     account, which is used to purchase office supplies and equipment
     for the extra-classroom activity office. No activity treasurer has
     been designated for this activity. In November 2005, monies from
     this activity were used to purchase building use scheduling software

     35
          An outside group maintains the records and funds for the main booster club.

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                             41
                                                                                   41
                          costing $815. The account clerk who serves as central treasurer is
                          also responsible for scheduling building use. This responsibility is
                          separate from her work as the central treasurer, and thus the fee for
                          the software should have been charged as a District expenditure, not
                          to an activity account. Further, the operating expense account was
                          primarily funded by interest income from the investment of extra-
                          classroom activity funds. During 2005-06, the interest income was
                          about $7,250. The District’s policy and newly adopted regulation
                          on extra-classroom activity funds does not provide direction
                          regarding the interest earned from the investment of the funds (i.e.,
                          whether the interest should be accredited to each activity account
                          based on its prorated principal investment, or should be used to
                          purchase supplies and materials for use by the clubs, etc.). As a result,
                          we found no authority for the central treasurer’s expenditure of the
                          monies derived from the interest earnings.

                          The school store is also accounted for in the extra-classroom
                          activity fund. The school store is run by teacher aids with no student
                          involvement. While a school store operated by student organizations
                          should be accounted for as part of the extra-classroom activity fund,
                          school stores with no student involvement should be sponsored by the
                          Board and accounted for in a separate school store fund.

                          During our fieldwork, the District had its internal auditors review
                          the nature and extent of non-student club activity within the extra-
                          classroom activity funds. They too found numerous clubs that were
                          not student-run. District officials informed us that they initiated
                          corrective action to address these findings, including removing the
                          booster clubs from the extra-classroom activities fund. The District
                          also provided training to its administrators on booster clubs and the
                          District’s requirements for extra-classroom activity funds in June
                          2007.

Reports                   Regulations require that a records of receipts and expenditures be
                          maintained and that reports be made at least quarterly to the board
                          of education. The Board did receive monthly reports on extra-
                          classroom activity funds, but these reports did not contain sufficient
                          detail regarding individual club activity. Instead of showing the
                          monthly receipts and disbursements and ending cash balances for
                          each club, the report summarized this activity for each school (the
                          high school and three middle schools). Because these summary
                          reports do not list each club, it is difficult for the Board to monitor
                          what clubs have been established and to review their individual cash
                          balances. For example, the school store carried a negative cash
                          balance throughout the 2005-06 fiscal year, and it ended the year
                          with a negative cash balance of $8,504. Although this negative
                          balance was reflected in the CPA’s annual audit report on extra-

 42       OFFICE OF THE NEW YORK STATE COMPTROLLER
                         classroom funds, it was not reflected in the monthly reports received
                         by the Board. Had the Board received reports summarizing and
                         clearly detailing individual activities, it might have been alerted to the
                         existence of activities of questionable legitimacy and it could have
                         identified activities with negative cash balances.

Cash Receipts and        A good system of internal controls over extra-classroom cash
Disbursements            receipts and disbursements provides, among other thing, that cash
                         and checks be deposited daily, or as quickly as possible to prevent
                         the loss or misuse of the cash. Disbursement should be made only
                         upon receipt of a payment order signed by the activity treasurer and
                         faculty advisor along with the final audited bill (invoice) to support
                         the expenditure. Two separate and independent sets of records of
                         receipts, disbursements and cash balances should be maintained;
                         one by the central treasurer and one by the student activity treasurer.
                         These records should be periodically reconciled to identify any errors
                         or irregularities that may occur.

                         Various individuals involved with the clubs (students, coaches,
                         advisors, etc.) collect money on behalf of their club. They prepare
                         an internal deposit slip to show the date, club, source of the funds
                         and amount of the deposit. The internal deposit slip and money
                         are put into an envelope or bag and deposited into a drop safe36 in
                         the high school. The central treasurer retrieves the money from the
                         drop safe. The central treasurer (or a designee) counts the money,
                         prepares the bank deposit and records the amounts for each club in
                         the central records. The central treasurer initials the internal deposit
                         slip to indicate that the funds were received and deposited and returns
                         it to the activity treasurer. The deposit is placed in a walk-in safe at
                         the high school’s main office and taken to the bank by messenger. We
                         reviewed 252 internal deposits from December 2005 and October
                         2006 totaling $143,742 and traced them to the related bank deposits37
                         and found that 53 of these deposits totaling nearly $44,000 were
                         deposited in the bank between 8 to 19 days after the receipts were
                         reported as deposited in the drop safe. When cash is not deposited
                         promptly, it is subject to increased risk of loss or misuse.

                         During our review of May 2006 receipts, we also noticed that one
                         deposit of gate receipts from a Sectional sports event was $100 short.38
                         The backup documentation showed that 378 tickets were sold for $3
                         each for a total of $1,134. The bank deposit slip also showed $1,134,
                         but the bank provided a correction notice to reduce the deposit by


                         36
                            The drop safe has an opening that allows individuals to put in their deposits. The
                         central treasurer must unlock the safe in order to retrieve the deposits.
                         37
                            These 252 internal deposits were combined into 15 bank deposits.
                         38
                            This deposit was for the PE Club.

                    DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                             43
                                                                                                       43
                         $100 to $1,034. The central treasurer said she did not know how this
                         discrepancy occurred, or why it was not detected until the deposit
                         was made at the bank.

                         During our fieldwork, the District became aware of two instances in
                         which a total of at least $5,300 was stolen from extra-classroom
                         activity funds. In one instance, District staff discovered the missing
                         money a month after it was taken, and in the other instance, it took
                         District staff at least three months to detect the loss. While we
                         were still performing our field work, an employee of the District
                         was arrested for these thefts. He subsequently resigned his position
                         and agreed to pay restitution. Had the activity treasurers attempted
                         to reconcile their records of receipts with the internal deposits slips
                         returned by the central treasurer on a timely basis, these thefts
                         might have been detected and investigated in a more timely manner.
                         Subsequent to the thefts, the District took corrective action to
                         improve the controls over cash. Corrective action included re-
                         locating the drop safe and extra-classroom activity office to an area
                         monitored by a security camera, and instituting the use of deposit logs
                         when money is placed into the drop safe and subsequently recounted
                         and deposited.

                         As part of our audit, we also reviewed 60 disbursements totaling
                         about $88,000 made from the extra-classroom activity fund during
                         our audit period. Our testing disclosed no improper expenses.

Recommendations          17. The Board and District officials should periodically review the
                             clubs to determine whether they are student run organizations and
                             remove those that are not legitimate extra-classroom activities.

                         18. The Board should amend its extra-classroom activity policy to
                             provide direction regarding the disposition of the interest earned
                             from the investment of extra-classroom activity funds.

                         19. The Board should require that monthly or quarterly reports on
                             extra-classroom funds reflect each activity separately.

                         20. District officials should ensure that cash and checks collected
                             by extra-classroom activities are deposited timely and that the
                             monies are physically safeguarded.




 44      OFFICE OF THE NEW YORK STATE COMPTROLLER
            Legal Services

     General Municipal Law requires school districts to adopt written
     policies and procedures governing the procurement of goods and
     services that are not subject to competitive bidding requirements.
     In accordance with this statute, the District adopted a purchasing
     policy and an administrative memorandum39 that outline the
     procedures District staff should follow when procuring goods and
     services, including professional services, which are not required to
     be competitively bid. Specifically, the administrative memorandum
     requires the District to use a request for proposal (RFP) process when
     procuring services from professionals such as lawyers, accountants,
     architects, engineers, underwriters and fiscal consultants. Alternative
     proposals secured by RFPs benefit school districts by fostering
     competition and providing a comparison of the qualifications and
     fee structure for various professional services. District officials and
     professional service providers should enter into written agreements
     that indicate the contract period, the services to be provided, and the
     basis for compensation for those services. A written agreement for
     professional services provides the District and the individual or firm
     furnishing services with a clearly defined and mutually agreed-upon
     basis for determining entitlement to payments.

     The District paid $659,94340 to one law firm for legal services
     during our 18 month audit period without entering into a written
     agreement, or soliciting written proposals as required by the
     District’s administrative memorandum. The Board appointed the
     law firm as legal counsel at its annual organizational meetings. The
     law firm bills the District by the hour, charging different hourly rates,
     depending on the law firm staff member providing the legal services.
     Although we found that the claims submitted by the law firm were
     sufficiently itemized to show the work performed, the Board did not
     enter into a written agreement specifying/detailing the services to be
     provided and the fees to be paid.

     The March 1993 administrative memorandum states that the
     purchasing officer will not be required to receive proposals or
     quotations for “procurements of professional services, which,
     because of the confidential nature of the services, do not lend
     themselves to procurement through solicitation.” However, the
     memorandum does not identify or give examples of what specific
     type(s) of professional services would meet this criterion. The

     39
       Administrative Memorandum #7, Purchasing Procedures, dated March 1, 1993
     40
        The District paid the law firm $383,022 during the 2005-06 fiscal year and
     $276,921 during the first six months of the 2006-07 fiscal year.

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    45
                                                                          45
                         memorandum specifically requires the District to solicit written
                         proposals from a number of different professionals before awarding
                         contracts for professional services. The memorandum identifies
                         lawyers as one example of a professional the District should hire
                         using a RFP process. The purchasing agent, who had been employed
                         by the District for over five years, found nothing in her files
                         indicating that the District had solicited proposals for legal services,
                         and District officials could not recollect soliciting proposals for such
                         services. The Superintendent told us that the attorney has worked
                         with the District for over 30 years and he is aware of all the District’s
                         legal matters. As a result, the District appoints him as the District’s
                         attorney each year and it does not solicit written proposals for legal
                         services.

                         A written agreement helps clearly define for both parties the services
                         that will be provided or the rate that will be charged. Additionally,
                         when the District hires professionals with the benefit of RFPs, the
                         District can be more certain that it is securing the most economically
                         beneficial and qualified service provider available.

Recommendations          21. The Board should enter into a written agreement with the
                             District’s attorney, stipulating the services to be provided and the
                             basis for compensation.

                         22. District officials should ensure adherence to its purchasing
                             policies and procedures through the use of the RFP process to
                             obtain professional services.




 46      OFFICE OF THE NEW YORK STATE COMPTROLLER
                                          APPENDIX A

                      RESPONSE FROM DISTRICT OFFICIALS

The District officials’ response to this audit can be found on the following pages.




                          DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY     47
                                                                                     47
48   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                         See
                                                         Note 1
                                                         Page 64




                                                         See
                                                         Note 2
                                                         Page 64




                                                         See
                                                         Note 3
                                                         Page 64




                                                         See
                                                         Note 3
                                                         Page 64




DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY    49
                                                          49
50   OFFICE OF THE NEW YORK STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY   51
                                                         51
                                                See
                                                Note 3
                                                Page 64




52   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                         See
                                                         Note 1
                                                         Page 64




                                                         See
                                                         Note 4
                                                         Page 64




                                                         See
                                                         Note 5
                                                         Page 65




                                                         See
                                                         Note 6
                                                         Page 65




DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY    53
                                                          53
54   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                         See
                                                         Note 3
                                                         Page 64




                                                         See
                                                         Note 7
                                                         Page 65




DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY   55
                                                         55
                                                See
                                                Note 8
                                                Page 65




                                                See
                                                Note 9
                                                Page 66




                                                See
                                                Note 3
                                                Page 64




56   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                         See
                                                         Note 10
                                                         Page 66

                                                         See
                                                         Note 3
                                                         Page 64


                                                         See
                                                         Note 11
                                                         Page 66



                                                         See
                                                         Note 12
                                                         Page 66




DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY   57
                                                         57
58   OFFICE OF THE NEW YORK STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY   59
                                                         59
60   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                         See
                                                         Note 13
                                                         Page 66




DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY   61
                                                         61
                                                See
                                                Note 14
                                                Page 66



                                                See
                                                Note 15
                                                Page 66




                                                See
                                                Note 16
                                                Page 67




62   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                         See
                                                         Note 17
                                                         Page 67




DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY     63
                                                           63
                                           APPENDIX B

                OSC COMMENTS ON THE DISTRICT’S RESPONSE

The District’s response contains extensive information that is not responsive to the findings in our
report. Much of the information in the response contains opinions of District officials that are not
directly related to the issues discussed in the report.

Note 1

As we explained on several occasions to District officials, our audits are audits of the government
entity and are not directed toward any specific individual. Our audit report clearly describes the
period covered by each of our findings and when necessary, identifies the specific administration that
the findings were related to. The findings entitled “Control Environment” and “Compensation and
Benefits” address issues that occurred before and after July 1, 2003, while the other findings in the
report primarily focus on the period after July 1, 2003.

Note 2

While the District’s response letter attributes nearly all of the deficiencies cited in our report to the
previous administration, many of our audit findings occurred during the current administration.
Additionally, the current Superintendent was the Deputy Superintendent in the prior administration
and several of the current Board members were also in office prior to July 1, 2003.

Note 3

Certain information in the District’s response has been redacted because it involves comments
about individuals’ personal lives or contains obscenities.

Note 4

As explained in our report, the former Superintendent’s gross earnings were inflated by the District’s
first adding the cash value for health, dental, life and disability insurance to his base salary and
then deducting the same amount and using it to pay his premiums for these insurances. The former
Superintendent’s employment contract was modified three years prior to his retirement to allow the
payment of the cash value of the benefits in lieu of receiving benefits in kind. Increasing his earnings
only to immediately deduct the amount to pay his insurance premiums is not consistent with his
contract and is an obvious manipulation of his gross earnings. We do not agree with the District’s
response that seems to imply that the Board bears no responsibility for ensuring that such questionable
schemes not be allowed.

Additionally, we reviewed an internal document on file at the District that summarizes the former
Superintendent’s base salary for the 2000-01 fiscal year. The document notes that he tentatively
planned to retire in 2003 (three years) and he wanted to increase his final average salary for “retirement
consideration.” It further notes that “…there is a strategy available to increase final average salary for
“retirement consideration: The conversion clause noted in [District counsel’s] letter would achieve this

  64        OFFICE OF THE NEW YORK STATE COMPTROLLER
goal.” The document also indicates the District’s plan to “convert life insurance premiums, disability
and health insurance costs.”

Note 5

Our report does acknowledge some of the actions taken by District officials to improve the District’s
control environment; however, the report is not intended to be a synopsis of all of the District’s actions
with respect to internal controls. For example, several of the corrective actions cited in the District’s
response letter were not related to matters included in the scope of our audit.

Note 6

In the finding entitled “Extra-Classroom Activity Funds,” we acknowledge that the District’s legal
counsel conducted an investigation of extra-classroom activity funds and the Board passed a
resolution to disband certain funds (including the LHS Club) in January 2004.

The Board’s January 2004 resolution requires that, “… as soon as reasonably possible, the
Superintendent shall recommend to this Board such modifications to the Board Policy IGDG and
Administrative Regulation IGDG-r as are required to make the safekeeping, auditing and accounting
for EAF monies consistent with the requirements of 8 NYCRR Part 172 and the recommendations of
the District’s auditors.” Despite this Board resolution, the District did not update its policy on extra-
classroom activity funds until a year and a half later in June 2005. Also, the June 2005 policy (which
replaced the previous IGDG policy adopted in 1975) was only two paragraphs long and it did not
provide District staff with detailed procedural guidance on extra-classroom activity funds. Instead, it
required the Assistant Superintendent for Administrative Services to establish procedures governing
the establishment of an extra-classroom activity, the receipt, deposit and payment of monies and the
related accounting requirements. It was not until after our audit period in September 2007 that the
District finally adopted the detailed administrative regulations called for in the June 2005 policy.

Note 7

After receiving the initial draft report, the District sought and received advice of its counsel
concerning the authority to provide split-dollar life insurance as a benefit under a superintendent’s
employment contract. The District counsel expressed his opinion that the District had authority to
provide this benefit. As noted in our report, we continue to have questions as to the authority of school
districts to provide this benefit.

Note 8

After receiving the initial draft report, the District sought and received the advice of its counsel on this
matter. The District counsel expressed his opinion that the District had authority to provide health
insurance coverage to surviving spouses and dependents of deceased District employees even though
not provided for in collective bargaining agreements or employment contracts. We do not concur with
that legal conclusion.




                            DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    65
                                                                                                      65
Note 9

Our report includes the former Superintendent’s view that subsequent contract amendments allowed
him to continue receiving the life insurance benefit; however, we ultimately concluded that the Board
did not authorize the extension of the benefit and the District overpaid $20,000 in life insurance
premiums.

Note 10

Our report acknowledges that the District considered pursuing civil actions against the Board member,
but it ultimately decided, upon the advice of counsel, that it was unlikely that a civil claim to recover
the funds would be successful.

Note 11

We modified our report to note that the District Attorney concluded that there was insufficient
evidence of criminal intent on the part of the Board member.

Note 12

District officials provided us with no written documentation showing that the Board took action to
modify the benefits of unaffiliated administrators.

Note 13

Our audit period for the objective dealing with extra-classroom activity funds was July 1, 2005 to
December 31, 2006. According to the June 2005 policy adopted by the Board, it replaced the 1975
policy, so we did not focus on the 1975 policy during our audit. Also, as discussed in Note 6,
the Board’s January 2004 resolution required the Superintendent to recommend modifications to
the District’s policy “as soon as reasonably possible.” Although the January 2004 resolution did
include some guidance for officials, no action was taken to update the policy until June 2005 when the
new policy was adopted, and the Board did not approve the detailed administrative regulations until
September 2007.

Note 14

We included the cost of legal services in our report to provide perspective to the reader on the
materiality of the expenditures.

Note 15

The minutes of the July 5, 2005 and July 11, 2006 Board meetings show that the law firm partner
was appointed as legal counsel. However, based on the District’s response, we modified our report to
indicate that the Board appointed the law firm as its legal counsel.




  66        OFFICE OF THE NEW YORK STATE COMPTROLLER
Note 16

The 1993 administrative memorandum is the only document that outlines what procedures
District officials should follow when obtaining professional services that are not required to be
bid. However, if this memorandum has expired as indicated in the District’s response letter, then the
District has no policy or regulation to help ensure that the District acquires professional services in a
manner that is in the best interest of the taxpayers.

Note 17

While the procurement of professional services is exempt from statutory competitive bidding
requirements, obtaining competition is in the best interest of the taxpayers because it helps provide
assurance that school districts are efficiently procuring these services. When we discussed the
District’s process for selecting its legal counsel with the Superintendent, we were told that the partner
of the law firm used by the District has been the District’s attorney for over 30 years and he is aware of
all of the District’s legal matters. She did not mention the review process referred to in the District’s
response letter, or that the District used this process when selecting legal counsel.




                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                  67
                                                                                                   67
                                          APPENDIX C

                     AUDIT METHODOLOGY AND STANDARDS

Our overall goal was to assess the adequacy of the internal controls put in place by officials to
safeguard District assets. To accomplish this, we performed an initial assessment of the internal
controls so that we could design our audit to focus on those areas most at risk. Our initial assessment
included evaluations of the following areas: financial oversight, cash receipts and disbursements,
purchasing, payroll and personal services and information technology.

During the initial assessment, we interviewed appropriate District officials, performed limited tests
of transactions and reviewed pertinent documents, such as District policies and procedures manuals,
Board minutes, and financial records and reports. In addition, we obtained information directly from
the computerized financial databases and then analyzed it electronically using computer-assisted
techniques. This approach provided us with additional information about the District’s financial
transactions as recorded in its databases. Further, we reviewed the District’s internal controls and
procedures over the computerized financial databases to help ensure that the information produced by
such systems was reliable.

After reviewing the information gathered during our initial assessment, we determined where
weaknesses existed, and evaluated those weaknesses for the risk of potential fraud, theft and/or
professional misconduct. We then decided upon the reported objectives and scope by selecting those
areas most at risk for further audit testing. To accomplish the objectives of this audit, our procedures
included the following:

   •   We interviewed appropriate District officials and employees to gain an understanding of the
       procedures and the corresponding controls related to each of our audit objectives.

   •   We compared the compensation paid to the former Superintendent, current Superintendent,
       two Assistant Superintendents and three Directors with Board-approved employment
       contracts and amendments, agreements, policies and resolutions. As part of this test, we
       examined available supporting records including payroll and personnel records. We also
       reviewed invoices for life and disability insurance policy payments, and documentation
       pertaining to the former Superintendent’s split dollar life insurance policy.

   •   We reviewed collective bargaining agreements for Teacher Aides, Teaching Assistants and
       Teachers. We reviewed personnel files, a report by the District’s legal council, health
       insurance billing rates paid by the District and records showing health insurance contribution
       billings, payments and balances due for one Board member. Using these documents, we
       computed the amount the Board member should have been billed and paid towards his health
       insurance coverage. We also reviewed the District’s Ethics Committee Charter, code of ethics
       and whistleblower policy.

   •   We reviewed laptop sub lease and use agreements between the District and students/
       parents. We examined individual laptop lease receivable balances for reasonableness, and
       compared May 2006 bank deposits with postings to individual laptop lease receivable records.
       We reviewed receivable records before and after adjustments were made by District staff

  68        OFFICE OF THE NEW YORK STATE COMPTROLLER
       to determine if an audit trail was present to show the changes made. We electronically
       compared the serial numbers reflected on an invoice for one shipment of 600 laptop computers
       to the District’s inventory records to determine if the records were complete. We conducted a
       physical inventory of laptops on hand at the high school Technology Office, storage area and
       library, and we compared the spare laptops on hand with the District’s inventory records. We
       also evaluated controls over duplicate receipts and the District’s enforcement practices for
       delinquent lease payments.

   •   We reviewed various documents, receipts and check copies pertaining to the donation of
       laptops to the District and subsequent sale of laptops by the District’s Technology Office.
       We also examined available documentation showing the Technology Director’s calculation of
       subsidy amounts due from LIFE and the amounts received from LIFE for the subsidies.

   •   We reviewed the 2003 equipment order for technology equipment and services to determine
       what equipment was acquired by the District through OCM BOCES. We obtained a listing
       from OCM BOCES of the Airport base stations purchased by BOCES and delivered to the
       District, and we obtained a letter from the Diocese showing the Airports installed at the
       Diocese during the summer of 2004. We compared the Airport serial numbers in the OCM
       BOCES listing with the Diocese listing to determine which Airports were initially acquired by
       the District, but later transferred to the Diocese. We also reviewed the results of the District’s
       physical inventory of Airports on hand at the District.

   •   Within extra-classroom activity funds, we reviewed all District policies and regulations
       relating to extra-classroom activities. We observed transactions and examined extra-
       classroom activity fund records such as the central treasurer’s ledgers, the student
       treasurers’ ledgers, student club data sheets, club constitutions and bylaws, payment
       order forms, cancelled checks, bank statements, validated deposit slips, student activity
       deposit forms, and cash receipts to determine the effectiveness of internal controls over
       extra-classroom activity fund functions and any associated effects of deficiencies in those
       controls.

   •   We reviewed the District’s procurement policy and administrative memorandums related
       to purchasing and we examined vendor history reports, appropriation accounts and invoices
       for legal services.

We conducted this performance audit in accordance with generally accepted government auditing
standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




                          DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                   69
                                                                                                   69
                                           APPENDIX D

           HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT


To obtain copies of this report, write or visit our web page:




                                    Office of the State Comptroller
                                    Public Information Office
                                    110 State Street, 15th Floor
                                    Albany, New York 12236
                                    (518) 474-4015
                                    http://www.osc.state.ny.us/localgov/




  70        OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                    APPENDIX E
                             OFFICE OF THE STATE COMPTROLLER
                              DIVISION OF LOCAL GOVERNMENT
                               AND SCHOOL ACCOUNTABILITY
                                            Steven J. Hancox, Deputy Comptroller
                                            John C. Traylor, Assistant Comptroller

                                      LOCAL REGIONAL OFFICE LISTING
BUFFALO REGIONAL OFFICE                                      GLENS FALLS REGIONAL OFFICE
Robert Meller, Chief Examiner                                Karl Smoczynski, Chief Examiner
Office of the State Comptroller                               Office of the State Comptroller
295 Main Street, Room 1050                                   One Broad Street Plaza
Buffalo, New York 14203-2510                                 Glens Falls, New York 12801-4396
(716) 847-3647 Fax (716) 847-3643                            (518) 793-0057 Fax (518) 793-5797
Email: Muni-Buffalo@osc.state.ny.us                          Email: Muni-GlensFalls@osc.state.ny.us

Serving: Allegany, Cattaraugus, Chautauqua, Erie,            Serving: Clinton, Essex, Franklin, Fulton, Hamilton,
Genesee, Niagara, Orleans, Wyoming counties                  Montgomery, Rensselaer, Saratoga, Warren, Washington
                                                             counties

ROCHESTER REGIONAL OFFICE                                    ALBANY REGIONAL OFFICE
Edward V. Grant, Jr., Chief Examiner                         Kenneth Madej, Chief Examiner
Office of the State Comptroller                               Office of the State Comptroller
The Powers Building                                          22 Computer Drive West
16 West Main Street – Suite 522                              Albany, New York 12205-1695
Rochester, New York 14614-1608                               (518) 438-0093 Fax (518) 438-0367
(585) 454-2460 Fax (585) 454-3545                            Email: Muni-Albany@osc.state.ny.us
Email: Muni-Rochester@osc.state.ny.us
                                                             Serving: Albany, Columbia, Dutchess, Greene,
Serving: Cayuga, Chemung, Livingston, Monroe,                Schenectady, Ulster counties
Ontario, Schuyler, Seneca, Steuben, Wayne, Yates
counties

SYRACUSE REGIONAL OFFICE                                     HAUPPAUGE REGIONAL OFFICE
Eugene A. Camp, Chief Examiner                               Jeffrey P. Leonard, Chief Examiner
Office of the State Comptroller                               Office of the State Comptroller
State Office Building, Room 409                               NYS Office Building, Room 3A10
333 E. Washington Street                                     Veterans Memorial Highway
Syracuse, New York 13202-1428                                Hauppauge, New York 11788-5533
(315) 428-4192 Fax (315) 426-2119                            (631) 952-6534 Fax (631) 952-6530
Email: Muni-Syracuse@osc.state.ny.us                         Email: Muni-Hauppauge@osc.state.ny.us

Serving: Herkimer, Jefferson, Lewis, Madison,                Serving: Nassau, Suffolk counties
Oneida, Onondaga, Oswego, St. Lawrence counties

BINGHAMTON REGIONAL OFFICE
Patrick Carbone, Chief Examiner                              NEWBURGH REGIONAL OFFICE
Office of the State Comptroller                               Christopher Ellis, Chief Examiner
State Office Building, Room 1702                              Office of the State Comptroller
44 Hawley Street                                             33 Airport Center Drive, Suite 103
Binghamton, New York 13901-4417                              New Windsor, New York 12553-4725
(607) 721-8306 Fax (607) 721-8313                            (845) 567-0858 Fax (845) 567-0080
Email: Muni-Binghamton@osc.state.ny.us                       Email: Muni-Newburgh@osc.state.ny.us

Serving: Broome, Chenango, Cortland, Delaware,               Serving: Orange, Putnam, Rockland, Westchester
Otsego, Schoharie, Sullivan, Tioga, Tompkins                 counties
counties



                                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                            71
                                                                                                                    71