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




         Albion
 Central School District
  Financial Condition and
   Internal Controls Over
        Purchasing
           Report of Examination
                   Period Covered:
             July 1, 2006 — July 14, 2008
                      2008M-211




               Thomas P. DiNapoli
                                Table of Contents



                                                                                Page

AUTHORITY LETTER                                                                 2


EXECUTIVE SUMMARY                                                                3


INTRODUCTION                                                                     5
           Background                                                            5
           Objective                                                             5
           Scope and Methodology                                                 5
           Comments of District Officials and Corrective Action                   5


FINANCIAL CONDITION                                                              7
            Budgeting and Use of Fund Balance                                    7
            Reserves                                                            10
            Unauthorized Reserve                                                11
            Recommendations                                                     12


PURCHASING                                                                      13
                Competitive Bids and Quotations                                 13
                Circumventing Purchasing Agent Approval                         14
                Recommendations                                                 15


APPENDIX    A   Response From District Officials                                 16
APPENDIX    B   OSC Comment on the District’s Response                          19
APPENDIX    C   Audit Methodology and Standards                                 20
APPENDIX    D   How to Obtain Additional Copies of the Report                   21
APPENDIX    E   Local Regional Office Listing                                    22




                       DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY          1
                                                                                       1
                                                 State of New York
                                    Office of the State Comptroller


Division of Local Government
and School Accountability

January 2009

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 Albion Central School District, entitled Financial Condition
and Internal Controls Over Purchasing. This audit was conducted pursuant to Article V, Section 1 of
the State Constitution and the State Comptroller’s authority as set forth in Article 3 of the General
Municipal Law.

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

Respectfully submitted,


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




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



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

Scope and Objective

The objective of our audit was to examine the District’s financial condition and internal controls over
purchasing for the period July 1, 2006 to July 14, 2008. Our audit addressed the following related
questions:

    •   Does the Board properly manage District finances by ensuring budgets are realistic and
        supported and by properly establishing and maintaining reserve funds?

    •   Are internal controls over the purchase of goods and services appropriately designed and
        operating effectively?

Audit Results

The Board and District officials did not adopt realistic budgets, establish and maintain reserves in
accordance with statutory requirements, or adhere to General Municipal Law (GML) and its own
purchasing policies when procuring goods and services. As a result, the taxes that have been levied
were unnecessary, and the District may have paid more than necessary for goods and services.

The District has not ensured that budget estimates are reasonable and has not established and
maintained reserves in accordance with statutory requirements. We found that the District has
routinely overestimated appropriations and underestimated revenues. Poor budget estimates resulted
in revenues exceeding expenditures by more than $5 million, in total, over the last five fiscal years,
on an average total budget of about $27 million. The District’s budgetary practices have consistently
resulted in operating surpluses that District officials have used to increase four general fund reserve
funds, including two that either lack adequate documentation of their need or were established and
funded without proper legal authority. For example, the District used a significant amount of the
operating surpluses to improperly fund an “Other Post Employment Benefits (OPEB) Accrued Liability
Reserve.” There is no statutory authority to establish a reserve for this purpose. The balance in this


                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                   3
                                                                                                    3
reserve at the end of our fieldwork was $5.6 million. Without documentation indicating the Board’s
intention for establishing and funding these reserves, it appears the District is using the reserves as a
vehicle to retain fund balance, instead of using these moneys to reduce the annual tax burden on its
residents.

Although the District has consistently appropriated fund balance to reduce the ensuing year’s tax
levy, this appropriated fund balance was not used as intended because the District reported operating
surpluses in each of the last five fiscal years. Therefore, fund balance actually increased each year. Had
these practices not occurred, and had District officials complied with statutory limitations for retained
fund balance, real property taxes over the past several years would have been substantially lower than
they were.

District officials failed to comply with GML requirements and/or the District’s own purchasing
policies when procuring goods and services. We tested 40 purchases totaling $320,991 and found
that District officials did not use competitive bidding for three purchases totaling $38,038 and did
not obtain quotations for seven purchases totaling $40,115. When District officials do not comply
with GML’s competitive bidding requirements and their purchasing policy in making purchases, they
cannot be sure they have obtained these goods and services at the lowest price. District officials did not
provide the oversight needed to ensure that staff consistently used the purchase order system that was
established to control the procurement process. We found that District staff often circumvented the
system by using purchase orders that were created after the purchase was made, without prior approval
by the purchasing agent. Although all the purchase orders we reviewed appeared to be for reasonable
and necessary District expenditures, allowing staff to bypass the purchase order system can result in
the District over-expending appropriations and/or employees purchasing goods and services that are
improper, more costly or unnecessary.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their
comments, which appear in Appendix A, have been considered in preparing this report. Except as
indicated in Appendix A, District officials generally agreed with our recommendations and indicated
they planned to initiate corrective action. Appendix B includes our comment on an issue raised in the
District’s response.




   4        OFFICE OF THE NEW YORK STATE COMPTROLLER
                                       Introduction
Background                     The Albion Central School District (District) is located in the Towns
                               of Albion, Barre, Carlton, Gaines, Kendall, Murray and Ridgeway in
                               Orleans County and the Town of Elba in Genesee County. The District
                               is governed by the Board of Education (Board) which comprises
                               nine elected members. The Board is responsible for the general
                               management and control of the District’s financial and educational
                               affairs. The Superintendent of Schools (Superintendent) is the chief
                               executive officer of the District and is responsible, along with other
                               administrative staff, for the day-to-day management of the District
                               under the direction of the Board.

                               There are three schools in operation within the District, with
                               approximately 2,300 students and 325 employees. The District’s
                               budgeted expenditures for the 2007-08 fiscal year were $30.9 million,
                               which were funded primarily with State aid, real property taxes and
                               grants.

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

                                   •   Does the Board properly manage District finances by
                                       ensuring budgets are realistic and supported and by properly
                                       establishing and maintaining reserve funds?

                                   •   Are internal controls over the purchase of goods and services
                                       appropriately designed and operating effectively?

Scope and                      We examined the internal controls over purchasing and financial
Methodology                    condition of the Albion Central School District for the period July 1,
                               2006 to July 14, 2008.

                               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 are
                               included in Appendix C of this report.

Comments of District           The results of our audit and recommendations have been discussed
Officials and Corrective        with District officials and their comments, which appear in Appendix
Action                         A, have been considered in preparing this report. Except as
                               indicated in Appendix A, District officials generally agreed with our
                               recommendations and indicated they planned to initiate corrective
                               action. Appendix B includes our comment on an issue raised in the
                               District’s response.

                          DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                5
                                                                                                5
                    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 forwarded to our office within 90 days. 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
                    Clerk’s office.




6   OFFICE OF THE NEW YORK STATE COMPTROLLER
                           Financial Condition

                         A school district’s financial condition is an indication of its ability to
                         fund public educational services for students within the district. The
                         responsibility for accurate and effective financial planning rests with
                         the Board, the Superintendent and the Assistant Superintendent for
                         Business. One of the most important tools for managing a district’s
                         financial condition is the budget process. District officials must ensure
                         that budgets are prepared, adopted and modified in a prudent manner.
                         Budgets should accurately depict the District’s financial activity while
                         also using available resources to responsibly lower the tax burden of
                         District residents.

                         However, District officials did not prepare reasonable budgets
                         for the 2002-03 through the 2006-07 fiscal years. District officials
                         consistently overestimated expenditures and underestimated revenues
                         and generated operating surpluses totaling over $5 million during this
                         period. District officials used the majority of the $1 million average
                         annual surplus to increase four reserve funds. One of these reserves,
                         whose balance totals $163,155, is unsupported; a second reserve,
                         the District’s Other Post Employment Benefits Accrued Liability
                         Reserve, with a balance of $5.6 million, has no statutory basis.
                         While the District annually appropriated fund balance to help finance
                         operations, it was not used because the District’s budgeting practices
                         regularly produced surpluses. With more accurate budgets and better
                         fiscal management practices, real property taxes in the District would
                         have been substantially lower during this five-year period.
Budgeting and Use        The Board is responsible for preparing and presenting the District’s
of Fund Balance          budget, or spending plan, to the public for vote. In preparing the
                         budget, the Board is also responsible for estimating what the District
                         will receive in revenue (e.g., State aid), how much fund balance will
                         be available at fiscal year end (some or all of which may be used to
                         fund the ensuing year’s appropriations) and, to balance the budget,
                         what the expected tax levy will be. During the several month period
                         from when the spending plan is approved by the voters and when
                         the tax levy is finally established (August), certain information such
                         as refined State aid estimates, finalized assessment rolls for each
                         of the towns in which the District is located, and a more accurate
                         fund balance amount, becomes available as the District’s accounting
                         records are closed for the fiscal year ending June 30. Even with all of
                         this available information to prepare an accurate budget, the Board
                         consistently did not adopt a reasonable budget.

                         The estimation of fund balance is an integral part of the budget process.
                         Fund balance represents resources remaining from prior fiscal years

                    DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                   7
                                                                                             7
                    that can, and in some cases must, be used to lower property taxes
                    for the ensuing fiscal year. A district may retain a portion of fund
                    balance, referred to as unreserved, unappropriated fund balance, but
                    must do so within the legal limits established by Real Property Tax
                    Law.1 Districts may also establish reserves to retain a portion of fund
                    balance for a specific purpose, but must do so in compliance with
                    statutory directives. It is the Board’s responsibility to continually
                    monitor the need for all reserves that have been established to ensure
                    the best interests of the taxpayers are being met.

                    A school district’s annual budget should include accurate estimates
                    of appropriations and the revenues and other resources available to
                    fund them. We compared budgeted amounts with actual results and
                    found that the District has routinely overestimated appropriations and
                    underestimated revenues as evidenced by the tables below.

             Fiscal Year Estimated Revenue2               Actual Revenue             Difference
              2002-03            $25,490,275                   $25,196,895             ($293,380)
              2003-04            $24,290,199                   $25,004,337               $714,138
              2004-05            $24,953,781                   $26,616,739             $1,662,958
              2005-06            $25,732,321                   $27,840,798             $2,108,477
              2006-07            $27,229,620                   $29,289,971             $2,060,351
                    Total       $127,696,196                  $133,948,740             $6,252,544


                                                              Actual
             Fiscal Year       Appropriations3                                        Difference
                                                            Expenditures
               2002-03                 $25,991,568             $24,730,423              $1,261,145
               2003-04                 $26,275,917             $24,579,835              $1,696,082
               2004-05                 $26,740,078             $25,576,420              $1,163,658
               2005-06                 $28,032,826             $26,504,924              $1,527,902
               2006-07                 $28,829,620             $27,504,117              $1,325,503
                   Total              $135,870,009            $128,895,719              $6,974,290

                    The District has consistently appropriated fund balance to reduce the
                    tax levy, which should result in a planned operating deficit each year.
                    However, the District experienced an operating surplus in each of


                    ____________________
                    1
                      Previously, unreserved, unappropriated fund balance could not exceed 2 percent
                    of the current year’s appropriations. At June 30, 2007 the limit was 3 percent of
                    2007-08 appropriations; it increased to 4 percent at June 30, 2008 and continues at
                    4 percent for years thereafter.
                    2
                      Does not include appropriated fund balance, which is a financing source but not
                    a revenue
                    3
                      Does not include reserve for encumbrances

8   OFFICE OF THE NEW YORK STATE COMPTROLLER
                          the last five completed fiscal years; therefore, no fund balance was
                          actually used in those years. As noted in the schedules, inaccurate
                          budget estimates resulted in revenues exceeding expenditures by
                          more than $5 million, in total, over the course of the last five fiscal
                          years, on an average total budget of about $27 million. During this
                          same period, the tax levy has increased each year from approximately
                          $5.7 million in 2002-03 to approximately $6.7 million in 2006-07.

                                                                               Unreserved,
Fiscal       Actual             Actual          Operating    Appropriated    Unappropriated
Year        Revenues          Expenditures       Surplus     Fund Balance     Fund Balance
                                                                                at June 30
2002-03     $25,196,895         $24,730,423       $466,472      $1,500,000           $428,176
2003-04     $25,004,337         $24,579,835       $424,502      $1,552,724           $525,000
2004-05     $26,616,739         $25,576,420     $1,040,319      $1,585,000           $364,828
2005-06     $27,840,798         $26,504,924     $1,335,874      $1,600,000           $292,251
2006-07     $29,289,971         $27,504,117     $1,785,854       $628,345          $3,188,381
   Total   $133,948,740        $128,895,719     $5,053,021

                          Expenditures — We reviewed expenditures over the last five4 fiscal
                          years and found that District officials consistently overestimated
                          appropriations by a total of almost $7 million during this period. We
                          performed a more detailed analysis of expenditures and determined
                          that the District has consistently overestimated appropriations for
                          operations and maintenance by an average of $485,000 (22 percent
                          more than actual expenditures) over the past two years. The District’s
                          expenditures for operations and maintenance averaged a total of
                          $2.2 million over the two year period; however, the District included
                          appropriations of $2.5 million in the 2005-06 fiscal year and $2.8
                          million in the 2006-07 fiscal year. We also determined that, over the
                          past two5 fiscal years, the program for children with disabilities has
                          been overestimated by an average of $217,000 (8 percent more than
                          actual expenditures) each year. District officials indicated that they
                          generally budget for a larger amount than necessary to account for
                          the possibility of new special needs children who may move into the
                          District. However, while certain participation levels may be difficult
                          to anticipate, the majority of the program’s costs relate to teachers’
                          salaries and tuition. Therefore, District officials have sufficient data
                          to more accurately estimate this program’s costs. Additionally, the
                          District overestimated appropriations for teaching (regular school) by
                          an average of $269,000 (3 percent more than actual expenditures).

                          Revenues — Our analysis also showed that the District consistently
                          underestimated revenues in its budget. In fiscal year 2005-06, the

                          ____________________
                          4
                              2002-03 through 2006-07
                          5
                              2005-06 through 2006-07

                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                   9
                                                                                           9
                           District underestimated State Aid by approximately $1.5 million,
                           which was comprised of $487,000 in Basic Formula Aid, $759,000
                           in Lottery Aid, and $277,000 in BOCES6 Aid. In the 2006-07 fiscal
                           year, the District underestimated State Aid by approximately $1.6
                           million, which was primarily Basic Formula Aid. This occurred
                           mainly because the District reduced the estimate for Basic Formula
                           Aid from $13.5 million in 2005-06 to $12.9 million in 2006-07.
                           District officials indicated that they use State Aid estimates based on
                           the Governor’s proposed budget that is presented to the Legislature in
                           January and do not update their estimates based on the final enacted
                           budget which, typically for most districts, is higher than the proposed
                           budget. During the five-year period, revenues were underestimated
                           by a total of approximately $6.2 million.

                           Use of Fund Balance — The combination of overestimating
                           appropriations and underestimating revenues resulted in operating
                           surpluses averaging $1 million in each year during the five year
                           period. An operating surplus increases the total year-end fund balance.
                           District officials have the discretion to reserve, appropriate or retain
                           (up to the statutory limit) portions of this fund balance in a manner that
                           best serves the interests of District taxpayers. Although the District
                           consistently appropriated fund balance, because surpluses are built
                           into the budget, appropriated fund balance was never actually used
                           to finance operations; instead, fund balance increased, rather than
                           decreased.

                           The District’s unreserved, unappropriated fund balance at June 30,
                           2007 was over $3 million, or 9.7 percent of the 2007-08 budget of
                           $30.9 million. This was greater than the 3 percent limit allowed by
                           law. District officials stated that, in August 2007, additional fund
                           balance was used to increase the Other Post Employment Benefits
                           Accrued Liability Reserve by $500,000 and the Capital Reserve by
                           $1.7 million; reducing the unreserved, unappropriated fund balance
                           to under $1 million, which brought the unreserved, unappropriated
                           fund balance within the 3 percent limit.

Reserves                   District officials used a portion of the operating surpluses from the
                           past several years to fund reserves. The Board adopted resolutions to
                           establish a Capital Reserve and an Unemployment Insurance Reserve
                           in the general fund and to increase previously established reserves – a
                           Tax Certiorari Reserve in the general fund and a Capital Reserve in
                           the capital projects fund. As of June 30, 2007, the District reported a
                           total reserved fund balance of $1.5 million in the general fund, and
                           $189,000 in the capital projects fund.


                           ____________________
                           6
                               Board of Cooperative Educational Services

 10        OFFICE OF THE NEW YORK STATE COMPTROLLER
                            As described in detail below, District officials were unable to provide
                            adequate justification for one of the four reported reserves: the Tax
                            Certiorari Reserve. Without documentation indicating the Board’s
                            intentions for establishing and funding this reserve, it appears the
                            District may be using the reserve as a vehicle to retain fund balance,
                            instead of using these moneys to reduce its residents’ annual tax
                            burden.

                            Tax Certiorari Reserve – The balance of this reserve at June 30,
                            2007 was $163,155. Districts can establish this type of reserve
                            fund for the payment of judgments and claims in tax certiorari
                            proceedings, provided that the total held in the reserve shall not
                            exceed the amount of anticipated judgments and claims from tax
                            certiorari proceedings. Any moneys not expended for the payment
                            of judgments or claims arising out of such tax certiorari proceedings
                            for the tax roll in the year such moneys are deposited to the reserve
                            must be returned to the general fund on or before the first day of
                            the fourth fiscal year following their deposit. The District could not
                            support this reserve balance with a current schedule of pending tax
                            certiorari proceedings and estimated costs, or any evidence that any
                            such proceedings have or will likely result in significant claims. The
                            District only maintained a schedule of proceedings from May 2005.
                            The Assistant Superintendent for Business stated that he did not
                            have information on the currently outstanding proceedings. Thus, the
                            moneys deposited to this reserve fund were not related to any specific
                            tax certiorari proceedings, as required by law. These moneys should
                            be returned to the general fund and used to reduce taxes.

Unauthorized Reserve        In addition to the reserves addressed above, the District used a
                            significant amount of its operating surpluses to fund an “Other Post
                            Employment Benefits (OPEB) Accrued Liability Reserve,” which is
                            accounted for and reported in the District’s trust and agency fund.
                            This reserve was established without Board action in the 1999-00
                            fiscal year. Further, there is no statutory authority to establish such
                            a reserve. This reserve was funded beginning in the 1999-00 fiscal
                            year through the 2003-04 fiscal year without any formal Board action,
                            although District officials state that the funding of the reserve was
                            discussed during open sessions of Board meetings. Beginning in the
                            2004-05 fiscal year, the Board began adopting formal resolutions to
                            transfer funds to this reserve. In the 2007-08 fiscal year, the Board
                            adopted two resolutions transferring a total of $1.5 million to this
                            reserve. At the conclusion of our fieldwork, the balance in this reserve
                            was over $5.6 million. The District intended to use the reserve to fund
                            retiree health insurance costs, for which the District has a calculated
                            long-term liability of $8.2 million as of June 30, 2007.



                       DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                11
                                                                                             11
                         Since this “reserve” was established, there have been no expenditures
                         made from it. Moreover, the District consistently budgets for and
                         pays retiree health insurance costs from the general fund. Therefore,
                         real property taxes are levied annually to fund these costs. District
                         officials indicated that this is because the OPEB Accrued Liability
                         Reserve has not been fully funded to cover the associated accrued
                         liability. Regardless, since there is presently no authority to reserve
                         moneys to fully fund this cost, the District must consult legal counsel
                         to determine what remedies it has available, including the return of a
                         substantial amount of this reserve to the general fund.

                         The District’s budgetary practices have consistently resulted in
                         operating surpluses that District officials have used to increase various
                         reserve funds, including two that either lack adequate documentation
                         to legitimize their need or were established and funded without
                         proper legal authority. This has resulted in a significant accumulation
                         of resources. Had these practices not occurred, real property taxes
                         would have been significantly lower, since the Board would have
                         been required to comply with the statutory limits for fund balance.

Recommendations          1. The Board and District officials should develop revenue and
                            appropriation estimates for the annual budget that are realistic and
                            monitor financial activity to ensure that operations stay within the
                            budget.

                         2. The Board and District officials should appropriate fund balance
                            to reduce taxes.

                         3. The Board and District officials should ensure that reserves are
                            properly established and maintained in accordance with applicable
                            statute and at reasonable levels.

                         4. The Board should consult with legal counsel on remedies to
                            address the Other Post Employment Benefits Accrued Liability
                            Reserve including the proper disposition of funds.

                         5. The Board should review all reserves and determine if the amounts
                            reserved are necessary, reasonable and in compliance with
                            statutory requirements. To the extent that they are not, transfers
                            should be made to unreserved fund balance, where allowed by
                            law, or other reserves established and maintained in compliance
                            with statutory directives.




 12      OFFICE OF THE NEW YORK STATE COMPTROLLER
                                  Purchasing

                        A good system of internal controls over purchasing consists of policies
                        and procedures that allow an organization to provide reasonable
                        assurance that it is using its resources effectively and is complying
                        with applicable laws and regulations. The Board is responsible for
                        designing internal controls that help safeguard the District’s assets and
                        ensure the prudent and economical use of its moneys when procuring
                        goods and services. The objectives of a procurement process are to
                        obtain services or materials, supplies, and equipment of the desired
                        quality, in the quantity needed, and at the lowest price in compliance
                        with applicable Board and legal requirements. This helps ensure that
                        taxpayer dollars are expended in the most effective manner.
Competitive Bids        The purpose of obtaining bids and quotes is to encourage competition
and Quotations          in the procurement of supplies, equipment and services that will
                        be paid for with public funds. The appropriate use of competition
                        provides taxpayers with the greatest assurance that goods and
                        services are procured in the most prudent and economical manner,
                        that goods and services of desired quality are being acquired at
                        the lowest possible price and that procurement is not influenced
                        by favoritism, improvidence, extravagance, fraud or corruption.
                        General Municipal Law requires school districts to advertise for
                        bids for purchase contracts in excess of $10,000 and public work
                        contracts in excess of $20,000. GML also requires the Board to adopt
                        written policies and procedures for the procurement of goods and
                        services that are not subject to competitive bidding requirements.
                        These policies and procedures should indicate when District officials
                        need to obtain competitive quotations or bids, and the procedures
                        for determining which method will be used, and should provide for
                        adequate documentation of the actions taken.

                        The District’s purchasing procedures do not require obtaining
                        quotations for purchases of supplies and equipment under $1,000.
                        For purchases greater than $1,000 and less than the competitive
                        bidding threshold of $10,000, three verbal or written quotations must
                        be obtained. The policy does not require quotations for public works
                        contracts7 under $5,000 but does require obtaining verbal or written
                        quotations for public works contracts between $5,000 and $20,000.

                        We selected a sample of 40 purchases totaling $320,991, ranging
                        in price from $1,285 to $69,212, to determine compliance with the
                        District’s purchasing procedures and GML. Of the 40 purchases tested,
                        seven required publicly advertised bids and 33 required quotations.
                        ____________________
                        7
                         The District’s procurement policy erroneously refers to public works contracts as
                        purchases of supplies and equipment.

                   DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                          13
                                                                                                   13
                           We found that 20 purchases totaling $211,560 lacked adequate
                           documentation to indicate whether the District was complying with
                           its procurement policy and GML. Exceptions are noted below:

                               •    Three purchases totaling $38,038 were not competitively bid
                                    as required by GML. For example, playground equipment
                                    was purchased for $12,330. District officials stated that the
                                    Parent Teacher Association donated the funds specifically for
                                    the playground equipment and therefore the equipment was
                                    not bid. However, regardless of the source of these moneys,
                                    since they were under the District’s control, District officials
                                    should have ensured that purchasing policies and procedures
                                    were followed.

                               •    Seven purchases totaling $40,115 did not have quotations
                                    obtained to comply with District requirements. For example,
                                    the District purchased a riser for $9,570. The documentation
                                    for this purchase stated that it was from a sole source,8 and
                                    District officials told us that they believed this purchase was a
                                    sole source. However, the purchase of risers, which are similar
                                    to portable bleachers, would not qualify as a sole source, as
                                    various vendors sell the equipment.

                               •    While it appeared that the District did follow GML and its
                                    policy for the remaining 10 purchases totaling $133,407, it
                                    did not adequately document these purchases showing that
                                    it had obtained competition. For example, District officials
                                    only documented in the financial system that they had
                                    obtained competitive quotes for seven purchases. They did not
                                    maintain any other documentation to confirm that quotes were
                                    obtained.

                           Without proper adherence to laws and established policies and
                           procedures, the District cannot ensure that they are procuring goods
                           and services in the most economical manner and in the best interest
                           of its taxpayers.

Circumventing Purchasing   A properly functioning purchase order system requires pre-approval
Agent Approval             via purchase requisitions. Such a system is effective in controlling
                           expenditures because it confirms that the purchasing agent is aware
                           of and authorizes the procurement of goods and services and that
                           adequate funds are available for the purchase. Approved purchase
                           requisitions are used to generate purchase orders, which specify the
                           price and other terms.
                           ____________________
                           8
                            Sole source commodities are generally controlled by one supplier and there is no
                           possibility of competition. Therefore, because the purposes of bidding would not be
                           furthered, competitive bidding is not required for true sole source commodities.

 14       OFFICE OF THE NEW YORK STATE COMPTROLLER
                       ‘Fast pay’ purchase orders, as the District defines this term, are a type
                       of confirming purchase order, which is created when an invoice is
                       received without first obtaining a purchase order. In order to make
                       payment, the invoice information is entered into the District’s
                       accounting system and a purchase order is automatically generated.
                       The purchase order is printed with the purchasing agent’s signature;
                       however, these purchases are never approved by the purchasing
                       agent. There is no indication on the purchase order that it is a fast
                       pay purchase order; therefore, it would appear to a claims auditor
                       or other reviewer that this purchase order was actually reviewed by
                       the purchasing agent. District officials stated that they use fast pay
                       purchase orders to pay referees for sports events and for emergencies.
                       However, District officials agreed that the potential exists for these
                       purchase orders to be used for any type of invoice.

                       We reviewed 100 purchases totaling $362,906 and determined that 23
                       were made using confirming purchase orders. For 25 other purchases,
                       we could not determine if the purchase order was issued prior to the
                       invoice date because no dates were included on the invoice or similar
                       documentation. None of the purchases included documentation
                       demonstrating that the purchase was an emergency.

                       Although all of the confirming purchase orders that we reviewed
                       appeared to be for reasonable and necessary District purposes,
                       allowing staff to bypass the purchase order system by means of
                       confirming purchase orders can result in the District over-expending
                       appropriations and/or employees purchasing goods and services that
                       are improper, costly or unnecessary.

Recommendations        6. District officials should enforce and monitor compliance with the
                          District’s procurement policy regarding obtaining the required
                          number of quotations for purchases under the competitive bidding
                          thresholds and adequate documentation to support purchase
                          decisions. For procurements that are anticipated to be greater than
                          competitive bidding thresholds, District officials should ensure
                          compliance with General Municipal Law.

                       7. District officials should ensure that purchase requisitions
                          and purchase orders are prepared and approved in advance
                          of the purchase. If confirming purchase orders are permitted
                          for emergency purchases, District officials should amend the
                          procurement policy to establish requirements for the use of, and
                          documentation needed to support, confirming purchase orders.




                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                 15
                                                                                         15
                                          APPENDIX A

                      RESPONSE FROM DISTRICT OFFICIALS

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




  16        OFFICE OF THE NEW YORK STATE COMPTROLLER
                                                          DISTRICT OFFICE
                                                               324 East Avenue
                                                           Albion, New York 14411
                                                              Tel:
                                                              Fax:
(Since 1876)
                                                              www.

                                               ADA D. GRABOWSKI,       Superintendent of Schools
                                              SHAWN LIDDLE, Assistant Superintendent for Business

                                                                    December



Mr. Robert E. Meller
Chief Examiner of Local
            and School Accountability
295 Main Street
Suite 1032
Buffalo, New York 14203

Dear Mr. Meller:

       The Albion Central School District is in receipt of the draft audit report prepared
by the Office of the State Comptroller. The information presented in the audit
demonstrates the intent of the process by providing us with an opportunity to reflect on
our operations and governance procedures. At all times during the process, the senior
examiner assigned to our District, was thorough, helpful, professional and courteous. We
appreciated the opportunity to work with an individual of her caliber.

        As indicated at the exit conference attended by Mr. Bonafede, President of the
Board of Education; Mr. Anderson, Chairperson of the                    Committee and
Board Member, Mr. Kevin Doherty, our collective goal over the years has been to
minimize the impact of inconsistent funding levels from the State Education Department         See
                                                                                               Note 1
while trying to maintain an effective instructional program insulated from dramatic            Page 19
swings in revenues. Due to the fact that approximately 80% of the District's operating
funds come directly from New York State, we have adopted an extremely conservative
philosophy in budget preparation and execution. Application of this philosophy has
allowed the District to achieve the lowest school tax rate in Orleans County and
keep the average tax levy increase to less than 1.2% over the past five years.

        The Governmental Accounting Standards Board (GASB) has been discussing the
issues surrounding Post Employment Benefits Other Than Pension Benefits since May
1990 when they issued GASB Statement               More recently, Statements #43 and #45
were published by GASB in 2004 requiring municipalities, including school districts to
recognize this liability. Quantifying the extent of this liability for the Albion Central
School District has been a fiduciary priority of the Board of Education. The actuarial
certification of the liability for the District was completed and documented four years in
advance of the date required by law. Recognizing the extent of this future cost, the

                       DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                17
                                                                                             17
December 10,2008
Page 2
Letter to Mr. Meller


District thoughtfully and deliberately pursued a two-prong strategy since 1999 to mitigate
future financial impact on the District. First, direction was given to manage the cost
through health care concessions in negotiating employment contracts. Secondly, the
Board has incrementally funded this cost with extensive dialogue in open Board of
Education meetings. The District is encouraged to see legislation sponsored by the
Comptroller and supported by New York State School Boards Association to give local
governments the authority to create a reserve for these monies to fund these costs.

        The audit report is accepted in the spirit in which it was prepared; that is, to
identify strategies to reduce costs and to strengthen controls in order to safeguard assets.
Implementing a Corrective Action Plan, as per the requirement, is consistent with one of
our District values, Committed to Continuous                     On behalf of our District,
we extend our appreciation to you for your insight and recommendations.

Sincerely,




                                 Thomas R. Anderson
Board President                              Chairperson        Board Member



                                                                Iva

Board Member                   Board Member                     Board Member




    King                       Dean Dibley                       argy r wn
Board Member                   Board Member                     Board




                                              Shawn E. Liddle
                                              Assistant Superintendent for Business




18           OFFICE OF THE NEW YORK STATE COMPTROLLER
                                            APPENDIX B

                 OSC COMMENT ON THE DISTRICT’S RESPONSE

Note 1

We understand the need for consistent funding levels. While cyclical economic conditions do influence
the distribution of aid to school districts, a significant widespread negative impact on aid is not the norm.
In fact, the State has increased aid, often by significant amounts, during periods of fiscal prosperity, as
it has the last few years. District officials should use the surplus fund balance identified in this report
in a manner that benefits District taxpayers, such as increasing necessary reserves, paying off debt,
financing one-time expenses, and reducing District property taxes.




                            DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    19
                                                                                                      19
                                           APPENDIX C

                     AUDIT METHODOLOGY AND STANDARDS


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

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 for audit
those areas most at risk. We selected financial condition and purchasing for further audit testing.

For financial condition, we reviewed the District’s reported results of operations for the six most
recently completed fiscal years and the budgets for the ensuing years. We also reviewed financial
reports provided to the Board for the purpose of monitoring the District’s budget. Additionally, for the
District’s reserve funds, we interviewed the Treasurer and the Assistant Superintendent for Business,
and obtained and reviewed pertinent Board resolutions, certain financial transactions, and schedules
maintained by the Assistant Superintendent for Business to document the establishment and use of
reserves. We also reviewed relevant statutory provisions.

For purchasing, we reviewed the District’s written purchasing policy. We then selected a sample of 100
purchases, including 40 that required written/verbal quotations or competitive bidding. We examined
these purchases to determine if the District obtained bids or quotations, if they included adequate
documentation, and to determine if purchases were made in accordance with the District’s policies
and regulations. In addition, we interviewed staff to gain an understanding of the District’s current
purchasing procedures.

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



  20         OFFICE OF THE NEW YORK STATE COMPTROLLER
                                           APPENDIX D

           HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT


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




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




                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY   21
                                                                                    21
                                                    APPENDIX E
                             OFFICE OF THE STATE COMPTROLLER
                              DIVISION OF LOCAL GOVERNMENT
                               AND SCHOOL ACCOUNTABILITY
                                            Steven J. Hancox, Deputy Comptroller
                                            John C. Traylor, Assistant Comptroller

                                      LOCAL REGIONAL OFFICE LISTING
BUFFALO REGIONAL OFFICE                                      GLENS FALLS REGIONAL OFFICE
Robert Meller, Chief Examiner                                Karl Smoczynski, Chief Examiner
Office of the State Comptroller                               Office of the State Comptroller
295 Main Street, 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
                                                             counties

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

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

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

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

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



  22            OFFICE OF THE NEW YORK STATE COMPTROLLER