OFFICE OF THE NEW YORK STATE COMPTROLLER
D IVISION OF LOCAL GOVERNMENT
& SCHOOL ACCOUNTABILITY
City School District
Internal Controls Over Selected
Report of Examination
July 1, 2006 — March 31, 2008
Thomas P. DiNapoli
Table of Contents
AUTHORITY LETTER 3
EXECUTIVE SUMMARY 4
Scope and Methodology 8
Comments of District Ofﬁcials and Corrective Action 8
ACCOUNTS RECEIVABLE 9
Accounts Receivable Records 9
Segregation of Duties 12
EXTRA-CLASSROOM ACTIVITY AND SCHOOL FUNDS 14
School Accounts 15
Cash Disbursements 18
Cash Receipts 20
Periodic Reconciliations 20
Interest Earnings 21
Inactive Accounts 22
Internal Control Improvements 22
PAYROLL AND BENEFITS 24
Segregation of Duties and Oversight 24
Retirement Reporting 27
Competitive Bidding 30
Legal Services 34
INFORMATION TECHNOLOGY 36
Disaster Recovery Plan 36
User Access Rights 37
Audit Logs 38
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 1
APPENDIX A Response From District Ofﬁcials 40
APPENDIX B Audit Methodology and Standards 49
APPENDIX C How to Obtain Additional Copies of the Report 52
APPENDIX D Local Regional Ofﬁce Listing 53
2 OFFICE OF THE NEW YORK STATE COMPTROLLER
State of New York
Ofﬁce of the State Comptroller
Division of Local Government
and School Accountability
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 oversees 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 Syracuse City School District, entitled Internal Controls Over
Selected Financial Operations. 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
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
Ofﬁce of the State Comptroller
Division of Local Government
and School Accountability
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 3
State of New York
Ofﬁce of the State Comptroller
The Syracuse City School District (District) is governed by the Board of Education (Board) which
comprises seven 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.
There are 38 schools in operation within the District, with approximately 20,000 students and 4,300
employees. The District’s budgeted expenditures for the 2007-08 year were $494 million, which were
funded primarily with State aid, real property taxes and grants.
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, 2006 through March 31, 2008. We extended the scope of our audit
to test the District’s June 2008 report to the New York State Employees’ Retirement System and its
December 2008 outstanding accounts receivable report. We also reviewed user access right reports
for May 2008 and the disaster recovery plan created by the District during the 2008-09 ﬁscal year.
In some instances, we reported on transactions and activities outside of our audit period because we
considered it necessary and relevant to this audit.
Our audit addressed the following related questions:
• Are internal controls over accounts receivable appropriately designed and operating
effectively to adequately safeguard District assets?
• Does the District have adequate internal control policies and procedures to protect and account
for District extra-classroom activity and School Accounts?
• Has the District provided compensation and beneﬁts to school employees and ofﬁcials in
accordance with the terms of relevant contractual agreements and Board policies?
• Has the District established policies and procedures to ensure that goods and services are
purchased in the most prudent and economical way?
• Are the District’s controls over information technology adequately designed to protect the
District’s ﬁnancial data from loss or misuse?
4 OFFICE OF THE NEW YORK STATE COMPTROLLER
District ofﬁcials’ ineffective use of staff and data resources during our audit period resulted in
inaccurate records of accounts receivables and signiﬁcant deﬁciencies in controls over these assets;
unsupported disbursements from School Accounts which the District is not legally authorized to have;
a number of purchases made without compliance with contracts or competitive bidding requirements;
routine payroll errors; and a lack of assurance that the District’s electronic data is properly safeguarded
from loss or misuse.
During our audit period, payments recorded as received in the accounts receivable records for the
various types of billed services totaled about $17 million. We found that internal controls over
accounts receivable were so poor that District ofﬁcials had no way of ensuring that all the moneys due
the District were actually received. Our testing identiﬁed funds that the District should have, but had
not, collected. In addition, the records the District did maintain were so inaccurate they could not be
relied upon. For example, accounts receivable recorded in the District’s detailed records at December
2, 2008 were overstated by at least $1.24 million, or 40 percent. District ofﬁcials did not have a formal
process to monitor and enforce unpaid bills.
We also found that certain District employees were responsible for incompatible duties. Several
individuals who handled cash receipts also had recordkeeping responsibilities or had access to the
computerized receivable records and could make changes to the accounts without supervisory review
or approval and without leaving an audit trail showing the adjustments made and who made them.
Consequently, there is an increased risk that District personnel could misappropriate funds and conceal
the theft by manipulating the records.
Thirty-seven of the District’s schools have a school account1 (School Account) that is controlled by the
principal or other staff members. As of June 30, 2008, school treasurers reported about $107,000 in
these School Accounts.2 However, the District had no legal authority to set up these School Accounts.
Furthermore, we found weak controls over extra-classroom activity (ECA) and School Accounts. Our
tests of disbursements disclosed payments totaling $3,400 that had no supporting documentation and
payments totaling $23,700 that lacked adequate support. Procedures to control cash disbursements
and cash receipts were circumvented or not followed; periodic reconciliations between the school
treasurers’ records and activity treasurers’ records were not completed; interest was not allocated
among the activities; and inactive accounts were not reviewed regularly. Given the lack of
documentation for numerous disbursements, District ofﬁcials are unable to determine the propriety
of many of these transactions and there is an increased risk that District or student moneys could have
We found that undetected errors routinely occur in the District’s payroll process. Our testing disclosed
that the District provided about $19,500 in compensation and beneﬁts to employees that were either
overpayments, or lacked Board authorization or adequate supporting documentation. For example,
the Superintendent authorized a principal to roll over 50 sick days from her employment at another
According to the District, moneys in these School Accounts may be used for direct and indirect beneﬁts to the students
and the educational environment.
At the time of our audit, the Business Ofﬁce was in the process of verifying that all school accounts were properly
identiﬁed by the school treasurers.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 5
school district when the District hired her, without obtaining Board approval. These additional sick
days could result in extra cash payments of about $10,625. Furthermore, District management did not
adequately segregate the duties of the payroll clerks and properly oversee their work, and the District’s
computerized payroll system was not able to generate complete ﬁnal payroll registers. The District did
not establish a standard work day for all employees for retirement reporting purposes and it incorrectly
reported the days worked for seven employees to the ERS. These errors resulted in part-time custodial
helpers being reported as working full-time and part-time typists being over-reported by one to 6.67
days during our test months.
The District did not consistently comply with policies and procedures regarding competitive bidding
and the Board and District management did not enforce the District’s policies and procedures
requiring oral or written quotes for purchases under competitive bidding thresholds. Our tests of 21
contracts for compliance with competitive bidding requirements disclosed that District ofﬁcials did
not comply with either policies and procedures or contract requirements for 10 of these contracts
totaling about $1.25 million. Additionally, the District did not follow its procurement policy nor did
it comply with contract requirements for eight out of 20 contracts we tested that were not subject to
competitive bidding, totaling $26,229. As a result, the District may have paid more than it needed to
for its purchases of goods and services.
The Board adopted a school attorney policy in October 2006 that requires ofﬁcials to use a request
for proposal (RFP) process “when seeking to retain a School Attorney.” District ofﬁcials stated that it
is the intent of this policy to require an RFP process only when the Board seeks to retain a new legal
counsel, not when it continues to retain its existing counsel. As a result, the District did not use an
RFP process when it re-appointed a law ﬁrm as the school’s attorney in May 2007. We believe that it
is a good practice to solicit competition for legal services at reasonable intervals. Without the beneﬁt
of periodic competition, there is an increased risk that the District will not secure legal services in a
manner that will optimize quality and cost.
Lastly, we found weaknesses in internal controls over the District’s computerized ﬁnancial system.
Speciﬁcally, District ofﬁcials have not developed an adequate formal disaster recovery plan for its
information technology, ensured that employees were given proper access rights or ensured that audit
logs and change reports were monitored. As a result, there is an increased risk that computer data
could be lost and the District would not be able to recover the data in the event of a disaster, and the
potential for misuse or alteration of data that could result in the compromise of sensitive information
and/or potential ﬁnancial loss to the District.
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. District
ofﬁcials generally agreed with our recommendations and indicated they plan to take or have already
taken corrective action.
6 OFFICE OF THE NEW YORK STATE COMPTROLLER
Background The Syracuse City School District (District) is located in the City
of Syracuse in Onondaga County. The District is governed by the
Board of Education (Board) which comprises seven elected members.
The Board is an independent body responsible for the general
management and control of the City of Syracuse’s (City) 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 District is not a department of
the City, but is a component unit. However, it lacks the authority to
levy taxes or incur debt and is, therefore, ﬁscally dependent upon the
City government. The District’s budget is subject to approval by the
City’s Common Council.
There are 38 schools in operation within the District, with
approximately 20,000 students and 4,300 employees. The District’s
budgeted expenditures for the 2007-08 year were $494 million, which
were funded primarily with State aid, real property taxes and grants.
Responsibilities relating to District ﬁnances, accounting records and
reports are largely those of the Chief Financial Ofﬁcer, the Director of
Fiscal Services and the Director of Accounting. The Board appointed
a claims auditor to assume the Board’s powers and duties in regard
to approving or denying claims against the District. All ﬁnancial
transactions are processed on a ﬁnancial accounting system located
on a server at the District.
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:
• Are internal controls over accounts receivable appropriately
designed and operating effectively to adequately safeguard
• Does the District have adequate internal control policies and
procedures to protect and account for District extra-classroom
activity and School Accounts?
• Has the District provided compensation and beneﬁts to school
employees and ofﬁcials in accordance with the terms of
relevant contractual agreements and Board policies?
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 7
• Has the District established policies and procedures to ensure
that goods and services are purchased in the most prudent and
• Are the District’s controls over information technology
adequately designed to protect the District’s ﬁnancial data
from loss or misuse?
Scope and The objective of our audit was to examine the District’s internal
Methodology controls over selected ﬁnancial activities for the period July 1, 2006
through March 31, 2008. We extended the scope of our audit to test
the District’s June 2008 report to the New York State Employees’
Retirement System and its December 2008 outstanding accounts
receivable report. We also reviewed user access right reports for May
2008 and the disaster recovery plan created by the District during the
2008-09 ﬁscal year. In some instances, we reported on transactions
and activities outside of our audit period 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 B 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 Appendix
Action A, have been considered in preparing this report. District ofﬁcials
generally agreed with our recommendations and indicated they plan
to take or have already taken corrective action.
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, a written corrective action plan
(CAP) that addresses the ﬁndings and recommendations in this report
must be prepared and provided to our ofﬁce within 90 days, with
a copy forwarded to the Commissioner of Education. To the extent
practicable, implementation of the CAP must begin by the end of
the next ﬁscal year. For more information on preparing and ﬁling
your CAP, please refer to our brochure, Responding to an OSC Audit
Report, which you received with the draft audit report. The Board
should make the CAP available for public review in the District
8 OFFICE OF THE NEW YORK STATE COMPTROLLER
The District provides various services for which it imposes charges
by billing individuals, departments of the District and the City of
Syracuse. These charges include such things as non-resident tuition,
charges for food services (within the District), charges for the use of
District facilities and other miscellaneous items such as charges for
photocopies. The District also bills to recapture certain reimbursable
costs. These include reimbursement for overpayments made by the
District, collection on insufﬁcient fund checks, and retirees’ health
insurance reimbursements. During our audit period, payments
recorded as received in the detail accounts receivable records for the
various types of billed services totaled about $17 million.
District management is responsible for establishing appropriate
internal controls over the District’s accounts receivable process.
Essential to effective internal control over billed revenues/
reimbursements is the maintenance of complete, accurate and
functional accounts receivable records that are suitable for monitoring
outstanding balances. Good internal control over accounts receivable
should also provide for adequate segregation of duties to prevent any
single individual from routinely performing incompatible duties.
Good recordkeeping and the separation of incompatible duties helps
safeguard these assets and provides assurance that amounts due the
District are collected and deposited.
We found that internal controls over accounts receivable were so poor
that District ofﬁcials had no way of ensuring that all the moneys
due the District were actually received. Our testing identiﬁed funds
that the District should have, but had not, collected. In addition,
the records the District did maintain were so inaccurate they can
not be relied upon. For example, accounts receivable recorded in
the District’s detailed accounting records at December 2, 2008 were
overstated by at least $1.24 million, or 40 percent. Although the
District did not rely on these records for its ﬁnancial reporting, the
absence of reliable detailed receivable records and weak controls
signiﬁcantly diminish District managers’ ability to monitor and
control these assets.
Accounts Receivable Effective recordkeeping for accounts receivable requires maintaining
Records a general ledger control record that summarizes the billing and
payment activity and unpaid balance for all accounts as well as a
detailed subsidiary ledger showing the activity and unpaid balance
of each individual account. The control account and the detailed
records should be periodically reconciled to help ensure accuracy
and to detect errors or other irregularities. The accounts receivable
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 9
detail records should provide sufﬁcient information to link recorded
billings with their supporting invoices and should clearly indicate
the date and amount of each billing and payment. Adjustments to
accounts receivable balances not related to the normal billing and
payment process should be identiﬁed, supported and explained in
journal entries. In addition, no adjustment should be made to the
accounts without prior approval by an appropriate individual (i.e.,
a departmental supervisor) who is independent of the accounts
receivable function. Also, where the billing and accounts receivable
recording process is computerized, the software used should be
capable of providing an audit trail showing all changes made to the
accounts and the system user who initiated the change.
We found that the District did not maintain an accounts receivable
control account. The general ledger account is only posted once each
year to record the estimated balance of accounts receivable at year
end for ﬁnancial reporting purposes. This estimate is based on the
actual payments on account received in the ﬁrst three months of the
subsequent ﬁscal year. The entry to record the estimate is reversed
in the next year to zero out the general ledger account until the next
year-end estimate is posted. Because an accounts receivable control
account is not maintained, the District has no mechanism to reconcile
the detailed subsidiary receivable records. Such a reconciliation helps
ensure the accuracy of the subsidiary records and enables the District
to detect and correct errors or irregularities. Due to inaccuracies
contained in the detailed subsidiary receivable records, District
management did not rely on the subsidiary records for its ﬁnancial
At our request, the former Director of Accounting generated a report
of the detailed accounts receivable at December 2, 2008 that initially
showed a total accounts receivable balance of $3,043,269. However,
the former Director of Accounting performed an analysis of the report
and concluded that the actual balance of outstanding receivables was
only $2,093,275 and that the report included $949,994 in erroneous
However, we found that this reported ﬁgure of $2,093,275 was also
inaccurate. On a sample basis we identiﬁed another $290,722 that
was not outstanding. We judgmentally selected and analyzed 19 open
invoices, totaling $349,982. We determined that ﬁve of the invoices,
totaling $248,445, were not open invoices but instead had actually
been paid or partially paid with the remaining balance uncollectible.3
We veriﬁed that amounts collected in payment of four of the ﬁve invoices were
recorded in the cash receipts journal and deposited in the bank. Payment on the
other invoice was received in the form of a credit on an outstanding bill owed by the
District to the same party. We reviewed the related journal entry that was recorded
in the general ledger of the central records to reﬂect this offsetting transaction and
noted nothing irregular.
10 OFFICE OF THE NEW YORK STATE COMPTROLLER
Five invoices, totaling $42,277, were subsequently determined by
District personnel to be uncollectible. The remaining nine invoices
totaling $59,260 were still outstanding. Therefore, only 17 percent
of the sample items we tested were still viable accounts receivable.
In total, the original report generated from the District’s detailed
accounts receivable records was overstated by at least $1.24 million.
We identiﬁed deﬁciencies within the District’s computerized
accounts receivable billing module which have led to inaccuracies
in the records and also make it difﬁcult for the District to monitor
accounts receivables. The system allows a report of the current
status of invoices, but it is not capable of generating a report of the
status of invoices at a previous point in time and it does not generate
an accounts receivable aging schedule. An accounts receivable
aging schedule is essential for monitoring detailed receivables and
initiating collection activity.
The District’s accounts receivable billing module also does not enable
the District to apply multiple partial payments against an invoice.
The system will only record the most recent payment on an invoice
and it will not show the previous payment history for that invoice. As
a result, when the Beneﬁts Department receives a partial payment,
staff will post the amount received to the ledger and then create a
new invoice in the amount of the remaining unpaid balance of the
original invoice. Consequently, if multiple payments are made for
one invoice, the total amount recorded as billed will be overstated.
This recordkeeping practice coupled with the fact that the unpaid
balances of accounts must be manually calculated increases the risk
of errors and makes monitoring of accounts difﬁcult.
Adjustments to accounts receivable to reﬂect voided invoices are not
always recorded in a manner that accurately depicts the action taken.
For example, when the Beneﬁts Department wants to void an invoice
in its receivable ledger, a ﬁctitious payment entry is made. In other
departments, a voided invoice is sometimes recorded by deleting the
invoice amount from the accounts receivable ledger. If an invoice is
voided in this manner, there is no record in the ledger of the amount
originally billed. We were advised by the District’s Systems Analyst
that the District’s computer operating system does not capture and
provide a record or report of voided invoices or changes made to
invoices and who made them.
To determine whether recorded invoices had been improperly
adjusted, we judgmentally selected 91 invoice entries representing
billings totaling about $1.6 million. We compared the information
shown in the ledgers to the original invoices (or our recalculation
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 11
of the original invoice) and concluded that the adjustments were
We also judgmentally selected 21 voided invoices to determine if the
transactions had been voided for legitimate reasons. We were able to
satisfy ourselves through examination of original invoices and other
supporting documentation that 19 of the 21 were legitimate voids.
However, because original invoices and any other documentation to
support the other two voided invoices were not available we could
not ascertain the reason(s) why these invoices were voided or verify
that the voids were appropriate.
The failure to maintain accurate accounts receivable records that
provide a clear audit trail of all billings, receipts and adjustments
weakens controls, increases the risk that fraudulent transactions
could be entered into the system and not detected and diminishes the
District’s ability to effectively monitor and enforce amounts due to
Segregation of Duties A fundamental concept of good internal control is the segregation
of incompatible duties. Authorizing transactions, recordkeeping and
receiving/handling cash should be performed by separate individuals.
When the same individual who handles cash also is involved in
billing and maintaining the accounts receivable records, there is
an opportunity to misappropriate funds and to conceal the theft by
manipulation of the records. Similarly, the ability to authorize and/
or make adjustments to accounts should not be held by someone who
District personnel involved in the billing and accounts receivable
recording process are responsible for incompatible duties. An
account clerk in the Business Ofﬁce is responsible for receiving
cash for all departments that bill for services, reimbursements etc.
However, the Beneﬁts Department receives most of the payments
made on its billings and other departments occasionally do receive
cash before transmitting it to the Business Ofﬁce. We found that the
same individuals, who handle cash receipts, including the Business
Ofﬁce account clerk, are also responsible for and/or have the ability
to enter invoices and post payments in the accounts receivable
ledgers. Moreover, all of these individuals also have the ability to
change information previously posted to the ledgers with no record
produced of the adjustments they might make. Personnel responsible
for making adjustments to the accounts receivable ledger, such as
voiding invoices or changing the amount of billings or payments,
are not required to obtain prior approval from a supervisor before
initiating such adjustments. The risks associated with not segregating
these duties, such as the opportunity to misappropriate funds and to
12 OFFICE OF THE NEW YORK STATE COMPTROLLER
conceal the theft by manipulation of the records, are exacerbated by
the internal control deﬁciencies in the accounts receivable records
that were previously discussed.
We judgmentally selected 75 invoices ($1,416,086 in total) that were
recorded as paid in the detail accounts receivable records during our
audit period, and we veriﬁed that the amounts recorded as paid agreed
with the amounts deposited in the bank. We also traced from duplicate
receipt books and cash receipts logs maintained in the Business Ofﬁce
to the related bank deposits and we found no signiﬁcant exceptions.
Recommendations 1. District ofﬁcials should maintain an accounts receivable control
account and someone independent from the cash handling and
recordkeeping process should periodically reconcile that account
with the subsidiary receivable ledgers.
2. District ofﬁcials should work with the Information Technology
(IT) department to ensure that the District’s computerized
accounts receivable system is able to accomplish the following:
• Generate reports showing the status of invoices at any
given point in time
• Generate accounts receivable aging reports
• Record multiple partial payments against original
• Track changes or adjustments made to the system and who
3. District ofﬁcials should require supervisory approval prior to
adjusting accounts receivable records and management should
periodically review change reports or logs for unusual activity.
4. District ofﬁcials should develop enforcement procedures for
outstanding billed invoices to ensure moneys due are collected
5. District ofﬁcials should review the District’s system of internal
controls over accounts receivable and address the risks. At a
minimum, cash handling and maintaining receivable records
should be segregated to the extent practical. Where incompatible
duties cannot be segregated, District ofﬁcials should establish
supervisory review procedures to mitigate speciﬁc risks.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 13
Extra-Classroom Activity and School Funds
Regulations of the New York State Commissioner of Education
(Regulations) require each school district’s board of education4 to
make rules and regulations for the safeguarding, accounting, and
auditing of all extra-classroom activity fund moneys. 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.
District management is responsible for the protection and oversight
of the District’s extra-classroom activity (ECA) moneys. These
responsibilities include adopting policies and procedures that
describe the methods for establishing the organization, the records
that District employees and students must maintain, and the duties
and control procedures that they must follow to adequately safeguard
ECA moneys. Having a good system of internal controls over these
funds helps minimize the risk that errors or irregularities may occur
and go undetected.
The District’s external auditor reported that the District had about
930 accounts5 in its extra-classroom activity fund during 2006-07.
These accounts include not only ECA accounts, but also individual
school accounts (“School Accounts” or “Accounts”). The School
Accounts are maintained by a treasurer in each school, but unlike
ECA accounts, the School Accounts are not maintained in connection
with student organizations. We found that the District is not
authorized to establish School Accounts.
The ECA accounts and School Accounts together recorded more than
$1.5 million of receipts and disbursements during the 2006-07 ﬁscal
year and had a cash balance of approximately $774,000 as of June
30, 2007. As part of our audit, we examined the ﬁnancial practices
and records for ECA accounts and School Accounts at ﬁve schools –
Corcoran and Fowler High Schools, Huntington K-8 School, Grant
Middle School and Webster Elementary School.
Although the District has provided guidance on ECA accounts and
School Accounts in the form of policies and regulations, various
Board resolutions and a procedures manual, District ofﬁcials and
This Regulation applies to school districts that have a population of less than one
million and an educational program beyond the 6th grade.
Moneys in these accounts were commingled in a bank account(s) for each school.
14 OFFICE OF THE NEW YORK STATE COMPTROLLER
employees did not always comply with this guidance. As a result, we
found weak controls over the ECA accounts and School Accounts.
For example, our tests of disbursements disclosed payments totaling
$3,400 that had no supporting documentation and payments totaling
$23,700 that lacked adequate support. We also noted instances in
which school treasurers disbursed and transferred funds without
required approvals and issued checks without the required dual
signatures. Additionally, school treasurers did not always issue
receipts, and the Board did not provide guidance on either the
distribution of the interest earned from the investment of the moneys
in ECA accounts and School Accounts, or the disposition of the
moneys in inactive accounts.
School Accounts According to the Regulations, an ECA is an 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
ECA is to allow students to operate an activity and be involved in
the ﬁnancial management of that activity. Generally, only activities
conducted by students qualify as an ECA.
Realizing that a number of the accounts in the ECA fund were not
related to student organizations, the Board adopted a policy and
regulation governing individual School Accounts in April 2007.
The District deﬁnes individual School Account funds as those funds
raised on a local basis (e.g., by donations speciﬁc to the school and
other approved fund raising activities) which do not consist of funds
budgeted through the District budget. These moneys are raised
for, by, or in the name of a speciﬁc school, but they are not raised
or maintained by a school student body through extra-classroom
activities. According to the District’s procedures manual, both ECA
accounts and School Accounts are used for the beneﬁt of students.
The main distinction between an ECA account and a School Account
is that an ECA account is restricted for the purpose of providing
direct beneﬁt for the students, whereas a School Account may also
be used for indirect beneﬁts to the students and the educational
There is no authority for the District to use School Accounts. Education
Law requires all funds raised for District purposes from any source
to be paid into the treasury of the City and disbursed by the City’s
chief ﬁscal ofﬁcer after the District claims auditor has audited and
approved the related claims. Additionally, Education Law requires
the District to estimate revenues from all sources in its annual budget
estimate ﬁled with the City. The District’s School Accounts do not
comply with these requirements because the receipts are collected and
deposited into the accounts by the school treasurers, who maintain
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 15
custody of the funds, rather than transferring them to the City’s chief
ﬁscal ofﬁcer. The school treasurers also disburse the moneys from the
accounts upon the approval of the building principal, without prior
audit and approval by the District’s claims auditor. Revenues and
expenditures of the School Accounts are not budgeted by the District,
and are not recorded in the District’s or the City’s central accounting
During 2007-08, the District opened separate bank accounts for each
school to segregate School Account funds from ECA funds. School
treasurers in 37 schools reported about $107,000 in School Accounts
as of June 30, 2008, but at the time of our audit, the Business Ofﬁce
had not yet veriﬁed that the reported balances represented all the
School Accounts. Although the District had not ﬁnished the process
during our audit, we identiﬁed at least 20 School Accounts in the ﬁve
schools we reviewed that should be accounted for in the District’s
general fund or trust and agency accounts, and disbursed following
audit and approval by the District’s claims auditor. These accounts
are funded by gifts, donations and grants, or funds raised by teachers,
coaches and parents rather than student organizations. Expenditures
from these accounts include payments for scholarships, purchases of
classroom supplies, and the costs associated with ﬁeld trips, library
improvements and athletics. Our testing of claims paid out of
School Accounts also disclosed expenditures for meals, equipment,
ofﬁce furniture, electronics, software, landscaping, sports ﬁeld
improvements, and magazine subscriptions.
In some cases, the School Accounts were funded with moneys paid
from the District’s general fund. During our audit period, the Board
approved payment of a total of $43,000 from the general fund to
School Accounts maintained by the four high schools, so that the
schools could use the funds to pay entry fees for athletic meets and
events.6 From July 1, 2006 to March 31, 2008, the District also
paid about $165,500 in revenues it received from beverage vending
machine commissions7 to School Accounts maintained by 37 of its
schools. This revenue was initially recorded in the general fund and
then the moneys were distributed to the individual School Accounts
in proportion to the vending machine commissions generated by each
school. Pursuant to an August 2001 Board resolution, each building
principal was required to ensure the funds derived from the vending
machine commissions were used solely for student-related incentives
and/or activities, but not for staff or consultant compensation, staff
Each high school receives $5,000 or $6,000 each ﬁscal year.
The District entered into a contract with a vendor which grants the vendor
exclusive pouring and vending rights to supply beverages to all District facilities. In
consideration for this right, the vendor pays the District a 37 percent commission on
the moneys collected. The District also receives an annual license fee in connection
with the contract, but this revenue is not distributed to the individual schools.
16 OFFICE OF THE NEW YORK STATE COMPTROLLER
development, staff travel or capital improvements. In November
2007, the Board passed another resolution requiring building
principals to use 60 percent of the funds derived from the vending
machine commissions for student incentives, and 40 percent of the
funds for staff development activities geared to improve student
achievement. The District now distributes only 60 percent of the
vending machine commission revenue to the School Accounts, and
accounts for the remaining 40 percent in the special aid fund.8
District ofﬁcials told us they prefer to account for the 40 percent
allocation in the special aid fund, rather than the general fund,
because this enables them to roll over to the following year any
unexpended balance instead of losing the identity of the funds when
they are closed to fund balance at year-end.
The revenues derived from vending machine commissions and
expenditures ﬁnanced with those funds should be accounted for in
the general fund, and not paid into School Accounts or accounted
for in the special aid fund. The special aid fund should only be used
to account for special projects or programs supported in whole or
in part by Federal funds or State-funded grants. Since the vending
machine commission revenue does not relate to any Federal funds or
State-funded grants, the District should account for the money in its
Furthermore, we noted that the District’s April 2007 policy on
individual School Accounts states that individual School Account
balances shall not exceed $7,500. However, we found that the
individual schools did not always comply with this requirement. For
example, according to quarterly ﬁnancial reports ﬁled by the schools,
as of March 31, 2008, Corcoran High School had $35,450 in its
Athletics School Account and Fowler High School had over $15,000
in its Principal School Account.
An audit by the District’s internal auditor and reviews of School
Accounts by the District’s claims auditor and Fiscal Services
Department identiﬁed a number of internal control deﬁciencies
involving School Accounts. As a result, the Board put a “freeze” on all
School Account expenditures effective July 1, 2008. Any expenses
out of the Accounts during the freeze period must ﬁrst be approved
by the appropriate Deputy Superintendent and the District’s Chief
Fiscal Ofﬁcer, and any such expenses must be reported monthly to
the Board. In December 2008, the Board also passed a resolution to
reduce the cap on individual School Account balances to $1,500.
This new allocation went into effect in January 2008. Unlike disbursements out of
the School Accounts, which are approved by the building principals, disbursements
from the Special Aid Fund are required to go through the District’s normal
procurement, claims audit and disbursement process.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 17
As discussed below, we found signiﬁcant control weaknesses related
to the ECA accounts and School Accounts. With respect to the
School Accounts, compliance with the requirements of the Education
Law relating to cash custody, audit of claims and budgeting
would strengthen controls, and thereby increase accountability and
transparency in the use of the moneys in the Accounts.
Cash Disbursements The District’s procedures manual, dated April 2007, outlines
procedures for the disbursement of moneys in ECA accounts and
School Accounts. The procedures manual requires the use of purchase
orders, and request for payment forms, to document requests and
approvals to make purchases and to disburse funds.9 Receipts or
invoices must be attached to request for payment forms and submitted
to the school treasurer in order to support the expenditures. The
District’s policies and procedures also require that all payments from
ECA accounts and School Accounts be made by checks signed by
both the Principal (or his or her designee) and the school treasurer,
and checks greater than $500 be pre-approved in writing by the
Central Ofﬁce. Transfers between ECA accounts and between School
Accounts must be documented on transfer forms and approved by
the respective activity advisor or principal, the school treasurer and
the Central Ofﬁce. Our tests of 368 cash disbursements out of ECA
accounts and School Accounts totaling about $212,000, and transfers
between accounts totaling about $31,000, disclosed the following
• Nine payments totaling about $3,400 contained no supporting
documentation. Eight of these payments totaling $2,710 were
made out of Corcoran High School bank accounts and one
payment for $690 was made out of a Grant Middle School
account. Some examples of the Corcoran unsupported
disbursements include $370 paid to a former principal,
$207 paid to two local restaurants, and $715 paid to a fence
company. The unsupported disbursement from Grant Middle
School was made to a bus company.
• Eighty-two payments totaling about $23,700 lacked adequate
supporting documentation. For example, we noted 18
disbursements totaling $3,753 paid out of Corcoran School
Accounts that were only supported by post-it-notes or other
informal notes that indicated the payee and amount, but
generally did not explain the reason for the disbursements.
Prior to the development of the procedures manual, the District had a policy
that required all ECA funds to be handled in accordance with ﬁnancial procedures
recommended by the State Education Department (SED). Similar to the District’s
current procedures manual, SED recommends the use of purchase and payment
Some disbursements had more than one deﬁciency.
18 OFFICE OF THE NEW YORK STATE COMPTROLLER
Two payments out of Corcoran’s vending machine School
Account for $300 each were based only on invoices indicating
“labor charges,” with no explanation of what services were
provided. Another nine payments totaling $3,185 out of the
Corcoran Athletics School Account were supported only by
forms showing the payee, amount paid, and the Advisor’s
signature. No invoices, receipts or explanations for the
disbursements were attached. Fowler High School made 14
payments to reimburse the school’s principal for expenses she
incurred. These payments totaling $1,224 were supported
by credit card receipts that lacked itemization to show what
was purchased. Notations on the claims indicate that many
of these purchases were for food or meals at meetings.
Webster Elementary School paid $4,676 out of its Principal
School Account for choral risers, but no invoice was attached
to support the payment. Also, Huntington School made
payments totaling $606 to a bus company without invoices or
• On 12 occasions, school treasurers wrote two to four checks
to the same vendor on the same day, apparently in order to
circumvent the Board’s policy requiring prior Central Ofﬁce
approval of checks over $500. In addition to these split
check payments totaling $9,419, there were three other check
payments, each in excess of $500, totaling $16,529, for which
there is no evidence of Central Ofﬁce approval.
• Twelve checks totaling $3,824 were signed by the school
treasurer, but were not signed by the Principal (or his or her
designee) as required by the District’s procedures.
• Twenty-eight transfers totaling $19,303 between ECA
accounts and between School Accounts lacked the required
forms to document approval of the transfers. The majority of
these transfers (24 transfers totaling $17,771) were made by
the school treasurer of Corcoran High School. We also found
two transfers recorded to increase accounts in the amount
of $543 and $100 that did not have corresponding transfers
recorded out of other accounts.
In addition, the ﬁve schools we examined did not always use the
purchase and payment order forms that were included in the District’s
procedures manual which went into effect in April 2007. While
Fowler High School used the forms in some instances, we noted
that the forms were not used for all disbursements, and some
disbursements lacked required approvals (e.g., approval by the
activity treasurer, activity advisor and/or the principal). Some of
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 19
the District’s other schools used their own forms, but these forms did
not always include all the authorizations required by the procedures
manual. The Grant school did not use any authorization forms, so
there was no documented approval of disbursements in that school.
Internal controls are weakened when disbursements are made without
required authorizations or based on missing or incomplete supporting
documentation. Due to the lack of documentation for certain
payments, District ofﬁcials are unable to determine the propriety of
transactions. In addition, the District’s failure to comply with its own
policies governing controls over these funds increases the risk that
errors and irregularities could occur and remain undetected and that
District or ECA moneys could be lost or misused.
Cash Receipts The District’s procedures manual requires each school treasurer to
prepare a pre-numbered three-part receipt11 for all cash and checks
received from ECA advisors or the principal. Both the school treasurer
and ECA advisor must sign the receipt to document the transmittal of
the funds. The ECA advisor or principal must make copies of all
checks received and submit them to the school treasurer who should
keep them on ﬁle with a copy of the pre-numbered receipt.
Our tests of March 2008 receipts, cash receipt records, deposit slips
and bank statements at the ﬁve schools disclosed that the school
treasurers did not comply with the District’s procedures manual.
Three school treasurers did not issue any pre-numbered receipts
when money was received. Two school treasurers completed two-
part receipts, and did not require the ECA advisor to sign the receipts
when money changed hands. The receipts used by one of the school
treasurer’s were not pre-numbered.12 None of the school treasurers
retained copies of the checks they received as required by the
procedures manual. During our testing, we found no exceptions when
tracing recorded receipts of $50,990 to the bank statement deposits.
However, the failure to use duplicate receipts increases the risk that
collections will not be recorded and accounted for properly.
Periodic Reconciliations The District’s policies and procedures require all ECA student
treasurers to maintain separate records of cash receipts and
disbursements. The activity advisor should guide the student treasurer
and review the student treasurer’s records. The school treasurer must
provide each ECA advisor with the activity’s beginning and ending
cash balances, and a quarterly list of transactions. The ECA advisor
The original receipt should be attached to copies of the checks and retained on
ﬁle by the school treasurer. One copy of the receipt should be given to the ECA
advisor/principal. The last copy should be retained in the receipt book maintained
by the school treasurer.
One school treasurer switched to three-part receipts during March 2008, but the
ECA advisor was not required to sign the receipts.
20 OFFICE OF THE NEW YORK STATE COMPTROLLER
must verify the activity shown on the list and sign off on the report.
The District does not have a process in place to ensure that student
treasurers are maintaining separate records, and that those records
are periodically reconciled with the school treasurers’ records and
differences investigated. For example, the school treasurers for
Fowler and Corcoran High Schools were not sure if each ECA
student treasurer maintained separate records of their activities’
cash receipts and disbursements. The school treasurer for Corcoran
indicated that he did not provide quarterly reports to each ECA
advisor for review. The Fowler school treasurer said he provided
quarterly reports to each ECA advisor, but the advisors did not sign
off on the reports as required by the District’s procedures. When
student ledgers are not maintained or are not compared with the
school treasurers’ records, there is an increased risk that errors or
fraud could occur and remain undetected.
The reconciliation of bank balances to ledger cash balances
is essential to ensure that District records reﬂect correct cash
balances and that cash is safeguarded. Accurate and complete bank
reconciliations include the timely identiﬁcation and investigation of
any differences. The District’s procedures manual requires school
treasurers to reconcile the ECA account and School Account bank
accounts on a monthly basis. Our review of March 31, 2008 bank
reconciliations disclosed no signiﬁcant exceptions in four out
of the ﬁve schools we tested. However, we noted an unexplained
reconciliation adjustment in the Corcoran school treasurer’s records.
We expanded our review of the Corcoran records and noted six
adjustments were made during our audit period – four adjustments to
decrease recorded cash a total of $708 and two adjustments to increase
cash by $4,162. While the adjustments were made to increase or
decrease cash in three separate School Accounts, the school treasurer
did not document the reasons for the adjustments or explain why they
were related to these Accounts. These adjustments were made during
the time period when the ECA accounts and School Accounts were
combined in shared bank accounts. When the school treasurer adjusts
records to agree with adjusted bank balances without identifying
the underlying cause of the discrepancy, it could result in an ECA
or School Account receiving either more or less moneys than it is
entitled to receive. The adjustment could also be used to cover up
Interest Earnings The District’s regulations on ECA accounts and School Accounts
provide that interest earnings for ECA accounts and School Accounts
must be distributed according to procedures established by the
District. However, the District has not established any additional
procedures to provide direction on how the interest earnings should
be distributed. During 2006-07, Corcoran High School had ECA
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 21
and School Account moneys pooled in an investment account13 that
had earnings of $3,432. The earnings were not credited to each
ECA account and School Account based on its pro-rata principal
investment. Instead, all of the earnings were distributed to the
Student Activities Account, which is a School Account controlled by
the principal. As a result, none of the ECAs received a pro-rata share
of the interest earnings.
Inactive Accounts The District’s regulation on extra-classroom activities requires
each principal and activity advisor to perform a semi-annual review
of inactive clubs and to distribute funds in accordance with NYS
guidelines for ECA accounts. SED regulations require the District
to adopt rules and regulations addressing the method of disposing
of funds of defunct organizations, but they do not provide speciﬁc
guidance on how funds should be distributed – this is a responsibility
of the Board. Our review of the records of ﬁve schools disclosed
33 accounts with a combined balance of $7,840 that had no activity
from July 2006 through March 2008. Without deﬁned procedures for
disposing of funds from inactive accounts, there is an increased risk
that moneys will not be available for valid uses, or that idle moneys
could be used inappropriately.
Internal Control During our audit period, the District took a number of steps to help
Improvements strengthen controls over ECA and School Accounts. In addition to
the annual external audits of ECA, these steps included developing
a procedures manual, conducting internal reviews/audits of the ECA
and School Accounts at four schools, initiating a process to segregate
School Accounts from ECA accounts, and implementing the use of
spreadsheets at most schools to record receipts and disbursements
for each ECA account and School Account. In February and March
2008 (near the end of our audit period), the District created a full-time
position in the Central Ofﬁce to oversee ECA and School Account
activity and provided training to school treasurers and principals.
Currently, staff in the Central Ofﬁce receives quarterly and annual
reports showing bank reconciliations and total receipts, disbursements
and balances for each ECA account and School Account, but in
general, no one regularly reviews the school treasurers’ records or
supporting documentation for receipts and disbursements. In the
future, the District plans to conduct random audits of ECA accounts
and School Accounts. These audits should help the District better
oversee school treasurers and determine if controls are operating as
The Corcoran High School had a money market mutual fund investment account
with a value of approximately $85,000. The District is not authorized by General
Municipal Law to invest funds in this type of an account.
22 OFFICE OF THE NEW YORK STATE COMPTROLLER
Recommendations 6. District ofﬁcials should continue the process of differentiating
ECA accounts and School Accounts, and discontinue the School
Accounts by transferring the balances to accounts within the
general fund or to trust and agency accounts as appropriate.
7. District ofﬁcials should ensure that District staff properly
document and support all ECA account disbursements with
itemized vendor invoices or receipts and written explanations.
8. District ofﬁcials should monitor compliance with the District’s
ECA account policies and procedures.
9. District ofﬁcials should require all ECA student treasurers
to maintain separate ledger records of cash receipts and
disbursements. These records should then be compared with
those maintained by the school treasurer on a periodic basis.
10. School treasurers should reconcile bank accounts on a monthly
basis and investigate any differences.
11. The Board should amend its policies and procedures to provide
direction regarding the distribution of the interest earned from
the investment of ECA moneys and the disposition of funds in
inactive ECA accounts.
12. The Board should continue to ensure that periodic audits of the
school treasurers’ records are performed.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 23
Payroll and Beneﬁts
Our audit of the District’s payroll function revealed a lack of
segregation of duties without adequate independent monitoring
procedures to detect errors or irregularities. Our testing disclosed
that errors routinely occur in the District’s payroll process and go
undetected. We found that the District provided about $19,500
in compensation and beneﬁts to employees that were either
overpayments, or lacked Board authorization or adequate supporting
documentation. We also found that District management did not
always establish a standard work day for reporting the days worked by
employees to the Employees’ Retirement System, leading to improper
Segregation of Duties Payroll duties should be segregated to ensure that no one employee
and Oversight controls all or substantially all phases of the payroll cycle and the
work performed by one individual is veriﬁed in the normal course
of another employee’s regular duties. If this is not feasible, District
ofﬁcials can implement mitigating controls such as having someone
independent of the payroll process perform a review of completed
payroll records. At a minimum, the review should include random
checks to verify that payrolls are based on actual hours or days worked
or authorized leave time; veriﬁcation that the Board authorized the
hourly rate, salary or other compensation; a comparison of net payroll
checks or direct deposits to payroll journals; and an assessment of the
payrolls for reasonableness. A periodic review of change reports and
audit logs can also be implemented to help limit risk.
The District did not adequately segregate key duties related to payroll
processing. Although staff in the Personnel Department added new
employees to the computerized payroll system, ﬁve payroll clerks
were responsible for all other payroll functions. The other payroll
functions include: activating and deactivating employees in the
system; inputting employees’ initial salaries and any changes made
to their salaries or pay rates; entering regular and overtime hours
worked; updating leave records; and changing employee banking
information and appropriation account numbers. Furthermore, in
several instances the payroll clerks calculated unused leave payouts,
retirement stipends and retroactive payments that were added to
employees’ paychecks without any supervisory review of their work.
The payroll clerks also notiﬁed the console operator when the checks
were ready for printing. They picked up the signed payroll checks
after they were printed and sorted and sealed the checks for delivery.
While staff in the Personnel Department initially authorized many of
the changes made by the payroll clerks (i.e., initial salaries, salary
24 OFFICE OF THE NEW YORK STATE COMPTROLLER
changes and longevity payments), there was no review or veriﬁcation
of the changes made by the payroll clerks after they were entered into
the ﬁnancial system.
The District’s procedures did not provide adequate oversight of the
clerks’ work to compensate for their conﬂicting duties in processing
payroll. Such duties could allow the payroll clerks to initiate
inappropriate transactions which may not be detected. Although a
payroll supervisor reviewed various preliminary payroll reports,
these reports were printed before the payroll clerks ﬁnished inputting
all timesheets and other payroll changes for the pay period, thus
reducing the effectiveness of his supervisory review. In addition,
the computerized payroll system does not generate a complete
ﬁnal payroll register which shows the gross pay, deductions and
withholdings, and the net pay amount for each employee.14 As a
result, District ofﬁcials were not able to perform a comprehensive
review of the ﬁnal payrolls and there was no process in place for
someone independent of the payroll process to certify the ﬁnal
payrolls. Furthermore, through March 2008, the majority of the
payroll reports that could be generated by the payroll system (eg.,
reports by withholdings or check lists) were shredded after three
months.15 We also found that the payroll clerks were the only ones
who reviewed system-generated change reports that summarize the
changes they made in the computer system, including changes to
salaries and pay rates.16 The review of these reports by supervisory
personnel or someone independent of the payroll process would help
the District to detect irregularities or mistakes in a timely manner.
Based on the risks resulting from the inadequate segregation of duties
and lack of oversight during our audit period, we tested the annual
salaries of 43 employees totaling about $2.8 million, examined a
sample of the associated cancelled checks or direct deposit listings,
and veriﬁed the payments were made to bona-ﬁde District employees.
Additionally, we tested the time sheets of 60 employees for one
pay period totaling $68,762 and examined the associated cancelled
checks or direct deposit lists for 30 of these employees.17 We also
tested a sample of 21 changes to employee salary and wage rates
The payroll system can produce a ﬁnal payroll report showing gross and net pay
amounts for employees who receive pay checks, but this report does not include
the net pay for employees who received direct deposits, and it does not show the
deductions and withholdings from each employee’s pay check. Withholdings are
summarized by withholding type on a report separate from the ﬁnal payroll report.
During our audit, District ofﬁcials extended the retention period for these payroll
reports to two years.
See the ﬁnding entitled “Information Technology” for additional information on
change reports and audit logs.
Since ﬁnal payroll registers were not available, we used computer generated
individual employee earnings records for our audit testing.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 25
reﬂected in change reports. These tests were completed to determine
whether amounts paid or beneﬁts provided to District employees
were appropriate. We found exceptions in the payments or beneﬁts
provided to 20 of the 103 employees we tested (nearly 20 percent).
• The Superintendent authorized a principal to roll over 50 sick
days from her employment at another school district when she
was hired by the District. This principal was covered under a
collective bargaining agreement and we found no indication
that the Board authorized this additional beneﬁt. These sick
days should not have been granted without Board approval.
Due to the sick day buyback provision in her bargaining unit
contract, these additional sick days could result in extra cash
payments of about $10,625.
• No supporting documentation could be found for payments
made to six employees totaling $4,298. Speciﬁcally, there
was no documentation on ﬁle to support the calculation of
retroactive payments made to four employees totaling $2,298.
Two other employees each received salary increases of $1,000,
but there was no documentation or Personnel Department
authorization to show the reason for the salary increases. A
payroll clerk believes the increases were longevity payments
for 30 years of service, but she was unable to verify whether
or not this was true.
• The District paid the former chief ﬁnancial ofﬁcer and
three deputy superintendents annual stipends of $300 each
for professional dues ($2,400 in the 2006-07 and 2007-08
years combined). These stipends were not allowed by their
individual employment contracts. After we discussed these
overpayments with District ofﬁcials, the District recouped the
funds from the employees.
• Three employees were paid for an incorrect number of hours.
One was overpaid in the amount of $1,653 and the other two
were underpaid a total of $189.
• Two employees were overpaid a combined total of $352 due
to errors in the calculation of their retroactive and resignation
• Three employees were overpaid a total of $290 because they
were paid at the incorrect rate.
26 OFFICE OF THE NEW YORK STATE COMPTROLLER
• The Superintendent was overpaid $135 due to the
miscalculation of a retroactive pay adjustment made after
his employment contract was approved. After we discussed
this overpayment with District ofﬁcials, the Superintendent
reimbursed the District.
• The direct deposits for 16 out of 48 employees could not
be traced to the bank because payroll reports showing the
breakdown of direct deposits were not retained.
We also noted that although the District had 26 regular bi-weekly
pay periods during the 2006-07 ﬁscal year, the District processed 68
payroll runs plus nine retroactive payment runs during the year. The
extra payrolls were primarily due to payroll mistakes, and time cards
and other paperwork that were submitted to the Payroll Department
too late to be incorporated in the normal payroll run. During our
audit period, the District began maintaining a log to summarize
the need for the unscheduled payrolls. This log is intended to help
ofﬁcials identify and evaluate the causes of the extra payrolls so they
can identify process improvements to reduce the number of payrolls
in the future.
Retirement Reporting One of the beneﬁts offered to the District’s non-instructional
employees is the ability to join the New York State and Local
Retirement System.18 This retirement system actually comprises two
different systems, which are the Police and Fire Retirement System
and the Employees’ Retirement System (ERS). As a participating
employer in ERS, it is imperative that District management establish
criteria by which a standard workday is measured for reporting
purposes and ensure that each member is properly reported.
Each member’s retirement beneﬁts are integrally related to salary and
service history. Consequently, each member should be reported
to ERS with accurate information for earnings and days worked,
calculated in accordance with retirement system guidelines. The
number of days worked should be based on the number of hours
worked on payrolls paid during the monthly reporting period and
the number of hours set by the Board as a standard workday for
retirement purposes. The standard workday used for retirement
purposes can vary by position and/or individual but cannot be less
than six hours per day or more than eight hours per day. Part time
employees are those who work less than the standard workday and
their service should be reported as a pro-rated proportion of the
standard workday for that position.
Teachers, substitute teachers, teaching assistants, guidance counselors and
certain administrators participate in the New York State Teachers’ Retirement
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 27
We tested the days worked reported for 70 employees19 in the
District’s monthly ERS reports for September and October 2007 and
June 2008 and found that the District over-reported the days worked
by one or more days in a month for seven of these employees. Two
of the employees were part-time custodial helpers, who the District
reported as having worked 20 days during the month tested which is
equivalent to full-time employment. Based on the employees’ actual
hours worked and the standard work day of eight hours set by the
District, the maximum number of days reported should have been
10.5 days for each employee. The other ﬁve employees that were
calculated incorrectly were part-time typists. They were reported
for having worked between 15 and 20 days per month. However,
the Board has not set a standard work day for these part-time typist
positions. Based on the minimum requirement of six hours per day,
the District over-reported the days worked for each of these employees
by one to 6.67 days during our test months. It appears that these
errors occurred because the District’s computer system uses incorrect
standard work day numbers to compute the days worked for certain
part-time employees. We have notiﬁed ERS of this misreporting so
that corrective action can be initiated.
Recommendations 13. District ofﬁcials should segregate payroll related duties to
the extent possible or establish additional supervisory review
procedures to mitigate the risk of payroll errors or irregularities.
14. District ofﬁcials should work with the IT department to develop a
ﬁnal payroll register in order to provide them with a mechanism
to review and certify the complete payroll run.
15. District ofﬁcials should ensure that supervisory personnel or
someone independent of the payroll process periodically reviews
change reports generated from the payroll system.
16. District ofﬁcials should evaluate the overpayments and
underpayments to employees and determine if the District should
pursue the recovery of the funds or compensate employees.
17. The District should retain documentation to support the
appropriateness of all payroll payments.
18. District ofﬁcials should not provide employees with beneﬁts that
the Board has not authorized.
We initially tested 59 employees and found that the days worked was incorrectly
reported for four part-time employees. As a result, we expanded our testing to
review the days worked reported for 11 additional part-time employees.
28 OFFICE OF THE NEW YORK STATE COMPTROLLER
19. The Board should formally set a standard workday consisting
of six to eight hours for calculating the days worked reported to
20. District ofﬁcials should develop review procedures to ensure
that days worked for both full-time and part-time members are
accurately computed and reported to ERS.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 29
An effective purchasing process helps the District obtain services,
materials, supplies and equipment at the desired quality, appropriate
quantity, and lowest cost, in accordance with applicable Board
policies and procedures, and other legal requirements. This process
helps the District ensure that it expends taxpayer dollars in the most
Both the City20 and District have developed policies and procedures
for purchasing to provide guidance to District ofﬁcials responsible
for procuring goods and services. However, we found that District
staff did not consistently comply with the policies and procedures
regarding competitive bidding. Further, the Board and District
management did not enforce the District’s policies and procedures
requiring oral or written quotes for purchases under competitive
bidding thresholds. Also, the District’s school attorney policy requires
ofﬁcials to use a request for proposal process when seeking to retain a
school attorney; however, the policy does not specify that the District
should solicit competition for legal services at reasonable, periodic
intervals. As a result, the District did not get the beneﬁt of a formal,
open competitive process and may have paid more than it needed to
for its purchases of goods and services.
Competitive Bidding The City Charter and District’s purchasing policy require that
purchase and public work contracts which exceed $7,500 and $10,000,
respectively, during any six-month period be publicly advertised for
bids and awarded to the lowest responsible bidder.21 The District may
also use certain contracts awarded by the New York State Ofﬁce of
General Services (OGS), the City, Onondaga County or any other
county within the State, or it may participate in cooperative bidding
with other local governmental entities such as a Board of Cooperative
Educational Services (BOCES). The appropriate use of competition
provides taxpayers with assurance that goods and services are
procured in the most prudent and economical manner, of the desired
quality, at the lowest possible price and that procurement is not
inﬂuenced by favoritism, extravagance, fraud or corruption.
The District is governed by the purchasing provisions outlined in the City Charter
(Education Law, Section 2556(8)).
General Municipal Law (GML) requires school districts to competitively bid
purchase and public work contracts which involve expenditures in excess of $10,000
and $20,000, respectively. The dollar thresholds in GML have been interpreted to
apply to the aggregate amount of expenditures for the same or similar types of
commodities or services over the course of a ﬁscal year. In June 2008 (after our
audit period), the Common Council amended its City Charter to increase bidding
thresholds in the Charter to the amounts currently required by GML.
30 OFFICE OF THE NEW YORK STATE COMPTROLLER
The City Charter enables the Common Council to waive competitive
bidding requirements for all City departments and the District by
adopting an ordinance by at least two-thirds vote with the approval
of the Mayor when it is impracticable to procure goods or services
by bidding. The District’s purchasing policy states that the District
is not required to secure alternative proposals or quotations in cases
when purchases are exempt from bidding by a Common Council
ordinance. While the Common Council may waive competitive
bidding for certain purchases, it is still in the public interest that the
District take steps to ensure that purchases be made at the lowest
cost to the District. Although we noted certain instances in which
the District did obtain quotes for purchases made pursuant to a
Common Council ordinance waiving bidding, we question whether
the District’s written policy to waive quotes in such instances is in the
best interest of the tax payers.
We tested 21 contracts totaling $1,681,306 for compliance with
City and District competitive bidding requirements. District
ofﬁcials appropriately solicited competitive bids or used State or
cooperatively bid contracts with BOCES for 11 of these contracts
totaling $426,660. However, District ofﬁcials did not comply with
either the City or District’s policies and procedures or City or State
contract requirements for 10 of these contracts totaling $1,254,646.
• In May 2007, the District purchased ﬁnancial, payroll and
human resource software and support/maintenance services
totaling $910,120. District ofﬁcials indicated the purchase
was made from an OGS Miscellaneous Software Catalog
(MSC) contract. As part of this State contract, a prohibited
software manufacturer list is maintained online by OGS. If
a manufacturer is on the prohibited list then its software
products may not be purchased from the State’s MSC contract.
The manufacturer of the software the District purchased was
on the prohibited software list.22 As a result, the District
was not authorized to purchase the software under this State
contract23 and it should have used the competitive bid process
prior to making the purchase. District ofﬁcials told us they
purchased the software because funding was available at the
Software manufacturers included in the prohibited list for the MSC contract
have their own contracts with the State. While their software cannot be purchased
through the MSC contract, it can generally be purchased under the manufacturer’s
State contract. However, though the manufacturer that developed the software
purchased by the District had its own State contract, that contract failed to provide
updated approved prices for the software. Consequently, the District should not have
purchased the software under either the MSC State contract or the manufacturer’s
We conﬁrmed this with OGS.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 31
time of the purchase and they received a discount from the
vendor at that time.
• Purchasing documentation indicates that the District
purchased ﬁve trucks totaling $164,682 from an OGS contract;
however we found that the purchases did not conform to the
State contract which was for a different model pickup truck.
Although the contract allowed certain upgrades, it did not
allow a change in the vehicle series. Since there was no State
contract available for the model that the District purchased, it
should have used a competitive bidding process.
• On four occasions, the District purchased used vehicles
without publicly advertising for bids or purchasing the
vehicles from a State, City, County or cooperatively bid
BOCES contract. In all, seven used vehicles were purchased
at a total cost of $111,799. Although District ofﬁcials did
obtain quotes from three vendors prior to making each of
these purchases, they told us they did not competitively
bid the vehicles because they purchased them under a
Common Council ordinance that waived competitive bidding
requirements. However, according to the ordinance, it only
waived bidding requirements for purchases of “…repair
services and overhauling including parts and labor, and
the purchase of repair parts and maintenance supplies for
automotive equipment.” When we contacted City purchasing
ofﬁcials, they conﬁrmed that the ordinance is for repairs and
it does not authorize the purchase of used vehicles without
competitive bidding. Therefore the District was required to
obtain competitive bids for these used vehicles.
• The District purchased uniforms for various sport teams
totaling $24,581 during the period July 1, 2007 to March
31, 2008. According to the District’s purchasing ofﬁcer, the
uniforms were purchased under a Common Council ordinance
that waived competitive bidding requirements; however, the
District did solicit quotes from four vendors to obtain the best
prices. The ordinance used by the District for this purchase
authorized the purchase of various non-copyrighted items,
such as instructional supplies and materials, instructional toys,
instructional equipment, maps and globes and miscellaneous
ofﬁce supplies for the District. The purchase of sports
uniforms does not fall under this ordinance and therefore the
District should have used the competitive bidding process.
• The District’s purchasing documentation indicates the District
purchased toilet tissue and paper towels totaling $31,612 from
32 OFFICE OF THE NEW YORK STATE COMPTROLLER
a contract that was competitively bid by the City. However,
when we reviewed the contract that includes toilet tissue
and paper towels, we noted the District did not purchase the
supplies from the vendor that won the contract.
• The District made two purchases of ice melt totaling $11,852
within three months. While the District did obtain three
quotes prior to making the ﬁrst purchase, it did not advertise
for bids as required by the City and District’s policies and
Because the District did not fully comply with City and District
policies and procedures and State and City contract requirements, the
District may have paid more than necessary for the above purchases
and did not otherwise get the beneﬁt of a formal, open competitive
Quotes District ofﬁcials informed us that the District follows the City’s
procurement policy for non-bid purchases. The policy requires the
District to obtain oral quotes from vendors for purchase contracts
between $501 and $3,000 and written quotes for purchase contracts
between $3,001 and $7,500. The policy also requires verbal quotes
for public works contracts between $501 and $3,000 and written
quotes for public works contracts between $3,001 and $10,000.
We tested 20 contracts aggregating $70,186 that were not subject
to competitive bidding requirements but were subject to the
purchasing policy related to oral and written quotes. District ofﬁcials
appropriately solicited quotes, made purchases under OGS, county or
City contracts or made purchases under appropriate ordinances for 12
of these contracts totaling $43,957. However, the District either did
not follow the procurement policy or it did not comply with contract
requirements for eight of these contracts totaling $26,229.
• Five contracts totaling $11,204 had no documentation to
indicate that District ofﬁcials obtained quotes. These goods
and services included a calling system ($4,999), stereo
headsets ($1,799), wiping rags ($1,740) four stoves ($1,476),
and transportation for a ﬁeld trip ($1,190).
District ofﬁcials indicated that various departments may
have included a summary of the quotes they obtained on
electronic requisitions for some of these purchases, but the
quotes were automatically deleted when the requisitions were
processed and purchase orders were issued. Due to the lack
of such documentation, the Board has no assurance that these
items were purchased at the lowest cost and the procurement
process is operating effectively.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 33
• Purchasing documentation on ﬁle for three contracts totaling
$15,025 indicated that the District purchased the items on an
OGS, City or County contract; however, we noted that the
District either did not use the vendor that held the contract
or it purchased items that were not included in the contract.
For example, purchasing documentation indicated the District
purchased an envelope imager and software totaling $9,090
on an OGS contract, but the vendor did not have this State
contract. Documentation related to the purchase of concrete
cubes totaling $1,600 indicated they were purchased from a
County contract, but the cubes were not part of the contract.
Purchasing documentation for radio/CD players totaling
$2,645 and wooden puzzles totaling $1,690 referenced a City
contract. While the City did award certain bid items to this
vendor, the items the District purchased were not part of the
bid documents or award.
When District ofﬁcials do not obtain quotations as required by the
procurement policies and procedures, or do not comply with contract
provisions, the District risks acquiring goods and/or services at higher
costs than necessary.
Legal Services Goods and services not required by law to be competitively bid must
be procured in a manner that assures the prudent and economical
use of public moneys in the best interests of the taxpayers. A request
for proposals (RFP) process is an effective means of procuring
professional services at the best value and documenting how the
selection of providers was made.
The Board adopted a school attorney policy in October 2006 that
requires ofﬁcials to undertake a competitive process “when seeking
to retain a School Attorney.” Speciﬁcally, the policy requires ofﬁcials
to “locate prospective qualiﬁed lawyers/law ﬁrms” by advertising in
professional journals and/or newspapers, checking listing of lawyers/
law ﬁrms, or making inquires of other districts or other appropriate
sources. In selecting a School Attorney, the District must consider
cost as well as certain other factors, including the special knowledge
or expertise of the attorney or ﬁrm. The District must then prepare a
written RFP which contains details of the services sought and submit
this request to prospective applicants. The policy also requires the
District to maintain documentation of the written proposals submitted
by lawyers/law ﬁrms for the position of school attorney.
The Board re-appointed a law ﬁrm as the school’s attorney in May
2007 without soliciting competition through an RFP process. We
have been advised by the District that it is the intent of this policy to
require this competitive process only when the Board seeks to retain
34 OFFICE OF THE NEW YORK STATE COMPTROLLER
a new legal counsel. Nonetheless, we believe that it is good practice
to solicit competition for legal services at reasonable intervals. In
this regard, as a general guide, we note that school districts generally
are required to utilize a competitive RFP process when contracting
for outside audit services no less frequently than once every ﬁve
years. The District paid $113,157 for legal services to this law ﬁrm
for the period November 2006 through June 2007 and $128,741 for
the period July 2007 through March 2008. Without the beneﬁt of
periodic competition, there is an increased risk that the District will
not secure legal services in a manner that will optimize quality and
Recommendations 21. District ofﬁcials should ensure that all District employees who
are involved in the purchasing process are aware of the District’s
requirements for competitive bidding and obtaining quotes. Also,
District ofﬁcials should periodically determine whether District
personnel are complying with the procurement policies and
22. The Board should review and amend its purchasing policy to
require ofﬁcials to obtain quotes when the Common Council has
waived competitive bidding requirements.
23. Purchasing ofﬁcials should verify that purchases conform
to OGS, City, County or District contracts prior to approving
24. District ofﬁcials and staff should retain documentation showing
the quotes they obtain.
25. The Board should amend its policy to require the solicitation of
proposals for legal services at reasonable, periodic intervals, such
as once every ﬁve years.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 35
The District relies on an information technology (IT) system for
providing computer education, accessing the Internet, communicating
by email, storing student data, maintaining ﬁnancial records, and
reporting to State and Federal agencies. Therefore, the IT system
and the data it holds are valuable District resources. The District’s
widespread use of information technology presents a number of
internal control risks such as unauthorized access to data and the
potential loss of data. District ofﬁcials must design an effective system
of internal controls to safeguard computerized data from loss and
misuse. It is important that this system include policies and procedures
to control and monitor access to ﬁnancial data and a formal disaster
recovery plan to minimize the damage that a disaster would cause to
operations if the IT system fails.
We found weaknesses in internal controls over the District’s
computerized ﬁnancial system. Speciﬁcally, District ofﬁcials have
not developed an adequate formal IT disaster recovery plan, ensured
that employees were given proper access rights and those access
rights were promptly updated when needed, or ensured that audit logs
and change reports were monitored. As a result, there is an increased
risk that computer data could be lost and the District would not be
able to recover the data in the event of a disaster, and the potential
for misuse or alteration of data that could result in the compromise
of sensitive information and/or potential ﬁnancial loss to the District.
Disaster Recovery Plan An effective system of internal controls over IT includes a formal
disaster recovery plan that addresses the possible loss of computer
equipment and data and establishes procedures for recovery in the
event of such a loss. It is essential that the plan provide precautions
that staff must take to minimize the effects of any disaster and enable
the District to either maintain or quickly resume its mission-critical
functions. Also, this plan should include a signiﬁcant focus on
disaster prevention. The Board should communicate the plan to all
responsible parties and periodically test it to ensure its effectiveness.
While District ofﬁcials had not established a formal disaster recovery
plan during our audit period, the District did provide us with a plan
for the 2008-09 year during the time of our ﬁeldwork. However,
the plan had a number of deﬁciencies which need to be remedied
if it is to effectively serve its intended purpose. The plan did not
speciﬁcally address the current ﬁnancial system nor did it provide
speciﬁc actions to be taken in the event that the server that runs the
District’s ﬁnancial system is damaged or destroyed. Consequently,
36 OFFICE OF THE NEW YORK STATE COMPTROLLER
in the event of a disaster, District personnel have no guidelines to
follow to help minimize or prevent the loss of equipment and data,
and no guidance on how to implement data recovery procedures. If
the computer system fails, the problems that result could range from
inconvenient to catastrophic. Even small disruptions in computer
systems can require extensive effort to evaluate and repair. The lack
of an adequate formal disaster recovery plan could negatively impact
the District’s ability to resume normal operations.
User Access Rights To ensure proper segregation of duties and internal controls, the
District must grant users of the computer system only the access that
is required to perform their job duties and responsibilities. Access
controls are intended to provide reasonable assurance that computer
resources are protected from unauthorized use and modiﬁcations.
Having access controls in place prevents users from being involved
in multiple aspects of ﬁnancial transactions and ensures that users are
restricted from unauthorized areas where they can intentionally or
unintentionally destroy or change critical ﬁnancial data.
As of May 2008, the District had not adequately restricted user
access rights to ﬁnancial data based on the duties and responsibilities
of staff. We found that three employees had access rights to functions
in the computer system that were incompatible with their other
duties and/or unnecessary for the performance of those duties. For
example, the accounts payable clerk had the ability to approve and
release invoices for payment in the computer system, which is the
responsibility of the claims auditor, and is incompatible with her
other accounts payable duties. Two other employees who no longer
work in the Payroll Department still had access to payroll modules
within the ﬁnancial system even though they do not need this access
to perform their current job duties. One of these employees had
access to conﬁdential employee information and leave records and
the other employee had the ability to change employee pay rates and
salaries. We also found that two employees who no longer work for
the District still had access rights to the payroll or beneﬁts modules
within the ﬁnancial system.
The former Director of Accounting informed us that she performs an
annual review of user access rights. However the report she reviews
does not provide all the necessary detailed individual computer
access rights information. There is a separate report that provides
information pertaining to additional accesses within the ﬁnancial
system that is available for review; however the former Director of
Accounting does not generally use this report to monitor employee
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 37
According to the former Director of Accounting, a lack of
communication between department heads responsible for informing
the systems analyst to update the access rights may have resulted in
the unnecessary access rights we identiﬁed during our audit. When
the District does not strictly control computer access rights, there is
an increased risk that unauthorized changes could be made to the data
or inappropriate transactions could be initiated and not detected by
Audit Logs It is important that the District’s computerized ﬁnancial system
allow ofﬁcials to determine who is accessing the system and what
transactions are being processed. Ideally, District management, or its
designee(s), should review audit logs, change reports and/or exception
reports to monitor the activity of users who access the ﬁnancial
system. Audit logs provide information such as the identity of each
person who has accessed the system, the time and date of access,
what activity occurred, and the time and date of sign off. Change
reports can be used to show changes made to data such as vendor
information or employee data, and exception reports can be used by
management to identify any instance where ﬁnancial information
has violated a pre-determined set of parameters. These reports
help provide the District with a mechanism for overseeing ﬁnancial
activity, determining individual accountability, reconstructing events
and problem monitoring.
The District’s ﬁnancial system is able to produce various audit log
reports; however management does not review them. The system
also generates daily change reports for payroll, which detail all of the
changes that each of the payroll clerks made in the payroll system
the day before. While the payroll clerks review the change reports,
the reports are discarded and not reviewed by District management
(see our ﬁnding entitled Payroll and Beneﬁts). The system does not
provide vendor change reports, however it can produce a daily report
of purchase orders by account number which lists purchase order
additions, changes, and deletions, and the last user. This report is not
reviewed by District management. The system also does not provide
change reports for accounts receivable (see our ﬁnding entitled
District ofﬁcials have stated that it is not practical to review the
lengthy reports that are generated by the ﬁnancial system. As a result,
day-to-day activities are not being monitored and there is an increased
risk that District ofﬁcials would not detect errors or inappropriate
38 OFFICE OF THE NEW YORK STATE COMPTROLLER
Recommendations 26. The Board should ensure that the District’s disaster recovery
plan is updated to include guidance on how to implement data
recovery procedures for the District’s ﬁnancial system. The
plan should be distributed to all responsible parties, periodically
tested, and updated as needed.
27. District ofﬁcials should monitor users’ access rights to ensure
they are appropriate based on job functions and responsibilities,
and that the level of access allowed promotes the proper
segregation of duties.
28. District ofﬁcials should periodically review audit logs and
change reports for unusual activity. If desired reports are not
currently available on the system, Management should work with
the IT department to obtain these reports.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 39
RESPONSE FROM DISTRICT OFFICIALS
The District ofﬁcials’ response to this audit can be found on the following pages.
40 OFFICE OF THE NEW YORK STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 41
42 OFFICE OF THE NEW YORK STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 43
44 OFFICE OF THE NEW YORK STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 45
46 OFFICE OF THE NEW YORK STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 47
48 OFFICE OF THE NEW YORK STATE COMPTROLLER
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. We selected accounts receivable, ECA and School Accounts,
payroll, purchasing, and IT 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 reviewed the District’s policies and procedures governing ECA and School Accounts.
• We reviewed payments of vending machine commission revenues and other general fund
moneys to individual School Accounts.
• We examined the ﬁnancial practices and records for ECA and School Accounts at ﬁve schools –
Corcoran and Fowler High Schools, Huntington K-8 School, Grant Middle School and Webster
Elementary School. Our tests included the following:
o We tested 368 cash disbursements out of ECA and School Accounts totaling about
$212,000 and transfers between clubs/accounts totaling about $31,000 to determine if
the disbursements were approved and supported and if they complied with the District’s
policies and procedures. We traced a sample of these payments to cancelled checks.
o We reviewed March 2008 bank reconciliations and traced March 2008 duplicate receipts
and other records to cash receipt books, deposit slips and bank statements. We also
reviewed the allocation of interest earnings.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 49
o We reviewed account activity from July 2006 to March 2008 to determine if the schools
had inactive accounts.
• To determine whether recorded invoices had been improperly adjusted, we judgmentally
selected 91 paid invoices totaling $1,643,080 recorded in the accounts receivable records and
traced to the original invoice or our recalculation of the invoice.
• We judgmentally selected 75 invoices ($1,416,086 in total) that were recorded as paid during
our audit period. We veriﬁed that the amounts recorded as paid agreed with the amounts
deposited in the bank. We also traced all duplicate cash receipts issued during the audit period
to the cash receipts journal and bank statement deposits. We selected three days from March
2008 and traced all entries from the daily cash receipts log to the cash receipts journal and then
to the bank deposit detail.
• We judgmentally selected 21 voided invoices to determine if the transactions had been voided
for legitimate reasons.
• To determine the collectability of accounts receivable, we judgmentally selected and
analyzed 19 open invoices, totaling $349,982 that appeared on the District’s December 2008
outstanding accounts receivable report.
• For payroll, we examined Board policies and procedures, employee personnel ﬁles, collective
bargaining agreements, individual employment contracts, Board minutes, payroll reports,
leave records, payroll logs and time cards to determine if the District had properly designed
and implemented internal controls and segregated payroll duties.
• We tested annual wages totaling $2,843,407 paid to 43 employees (including the
Superintendent, former Chief Financial Ofﬁcer, payroll supervisor24 and ﬁve payroll clerks)
during the 2006-07 ﬁscal year. We reviewed Board approvals, bargaining unit contracts or
District records for salary authorization. We also reviewed personnel ﬁles to verify they were
bona-ﬁde employees and a sample of cancelled checks and direct deposit transmittals to verify
that payments made agreed to the records.
• We tested 60 employees’ time cards for one pay period to verify that the hours recorded in the
payroll records agreed to the authorized and approved time cards. For 30 of these employees,
we veriﬁed their pay rate to bargaining unit contracts or other Board approvals. We also
veriﬁed the payments to the cancelled check or direct deposit transmittal.
• We tested a sample of 21 changes to employee salary and wage rates reﬂected in payroll
• Internal controls over the District’s administration of the Employees’ Retirement System
(ERS) were determined by interviewing employees and reviewing collective bargaining
agreements to ensure the Board had established a standard work day. We reviewed monthly
The payroll supervisor’s salary was tested for the period August 2007 through March 2008.
50 OFFICE OF THE NEW YORK STATE COMPTROLLER
retirement system reports for September and October 2007 and June 2008 and compared
reported compensation and service time to employee payroll information for the same period.
• We obtained copies of District and City procurement policies and procedures and the City
Charter and evaluated the adequacy of these policies.
• We interviewed appropriate District ofﬁcials and employees regarding the District’s
procurement policies and procedures. These discussions allowed us to analyze the District’s
internal control structure governing the procurement of goods and services.
• We tested 21 contracts totaling $1,681,306 to determine if the District complied with
competitive bidding requirements. We also tested 20 other contracts totaling $70,186 to
determine if the District sought competition for purchases below the bidding thresholds.
• We reviewed the contract for legal services and sample of four claims paid to the law ﬁrm
totaling $65,929, and we determined if the District used an RFP process to select the law ﬁrm
serving as the school attorney.
• We examined user permission reports to determine if users were granted access rights only to
the computer applications that were appropriate for their job duties.
• We examined available audit logs and change reports generated from the computerized
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
objective. We believe that the evidence obtained provides a reasonable basis for our ﬁndings and
conclusions based on our audit objective.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 51
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
52 OFFICE OF THE NEW YORK STATE COMPTROLLER
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, Suite 1032 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
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
Serving: Albany, Columbia, Dutchess, Greene,
Serving: Cayuga, Chemung, Livingston, Monroe, Schenectady, Ulster counties
Ontario, Schuyler, Seneca, Steuben, Wayne, Yates
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
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 53