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




     Southwestern
 Central School District
    Internal Controls Over
Selected Financial Operations

           Report of Examination
                   Period Covered:
          July 1, 2006 — September 12, 2008
                      2008M-233




               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                  6



FINANCIAL CONDITION                                                            7
           Fund Balance and Budgets                                            7
           Reserves                                                            7
           Recommendations                                                     9



PAYROLL PROCESSING                                                         10
           Board Minutes                                                   10
           Leave Time                                                      10
           Recommendations                                                 11



NETWORK SECURITY                                                           12
          Recommendations                                                  13



APPENDIX A    Response From District Officials                              15
APPENDIX B    Audit Methodology and Standards                              19
APPENDIX C    How to Obtain Additional Copies of the Report                21
APPENDIX D    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 Southwestern Central 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 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 Southwestern Central School District (District) is located in the Towns of Busti, Ellicott and
Harmony, in Chautauqua 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.

Scope and Objective

The objective of our audit was to examine the District’s internal controls over selected financial
operations for the period July 1, 2006 to September 12, 2008. Our audit addressed the following
related questions:

   •   Has the Board taken adequate action to address excessive unreserved, unappropriated fund
       balance, unnecessary reserve fund balances, and unrealistic budgets in the general fund?

   •   Are internal controls over payroll and the maintenance of leave time records, for other than
       teachers and custodial staff, appropriately designed and operating effectively?

   •   Are internal controls over information technology appropriately designed and operating
       effectively?

Audit Results

The District does not have adequate controls in place to accurately evaluate the District’s financial
condition and safeguard assets. This was evident in the excessive fund balance in the general fund
over the last several years; the maintenance of several reserves with no demonstrated need for them;
and the lack of controls over certain aspects of information technology and leave time management.

The Board has not adequately monitored the District’s financial condition, resulting in the June 30,
2007 unreserved, unappropriated fund balance of approximately $1.3 million representing 5.6 percent
of the ensuing year’s budget, or nearly twice the legal limit that a school district was allowed to retain.
The surplus has not been used to reduce the District’s tax levy. In addition, the District has established
various reserves, which continue to increase; however, District officials did not demonstrate the need
for the balances maintained.



                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                     3
                                                                                                      3
The minutes of the Board’s proceedings did not clearly identify the Board’s authorization of certain
employee benefits. In addition to salaries, certain employees were paid for unused leave time, in the
amount of $20,414, without Board authorization. In addition, the District does not have a process for
tracking employee attendance and there is no signature from the employee or a manager attesting to
the time worked. Further, there is no procedure in place to account for leave time usage and balances.
As a result, the District’s internal controls were not sufficient to ensure that employees received only
the pay and benefits to which they were entitled. The lack of a payroll policy and formal written
procedures, coupled with segregation of duties issues, lack of managerial oversight, and insufficient
payroll certification could lead to irregular activities occurring and remaining undetected.

The information technology system at the District has limited security features. The District does not
have a specified process for the addition or deletion of a user from the network, resulting in former
employees still having access. There is no formalized disaster recovery plan for creating, storing
and testing backups. Additionally, the virus definitions on network computers are not coordinated.
Updates must be done on each machine individually, creating vulnerable points for the District. The
District has allowed an outside organization to use District resources to host their website. Because
of these weaknesses, the District is at an increased risk that data may be lost or corrupted, and that
an unauthorized user could access the system and misuse, lose, or inappropriately modify or disclose
District’s sensitive information.

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 planned to initiate corrective action.




  4         OFFICE OF THE NEW YORK STATE COMPTROLLER
                                     Introduction
Background                   The Southwestern School District (District) is located in the Towns
                             of Busti, Ellicott and Harmony, in Chautauqua 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. The Board appointed the Director
                             of Curriculum to certify payrolls, which are processed by the payroll
                             clerk using the District’s computerized financial system. The District’s
                             computer network is also used by the District in day-to-day operations
                             to process and record other financial activity.

                             There are three schools in operation within the District, with
                             approximately 1,550 students and 260 employees. The District’s
                             budgeted expenditures for the 2007-08 fiscal year were $23.5 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 internal
                             controls over selected financial operations. Our audit addressed the
                             following related questions:

                                •   Has the Board taken adequate action to address excessive
                                    unreserved, unappropriated fund balance, unnecessary reserve
                                    fund balances, and unrealistic budgets in the general fund?

                                •   Are internal controls over payroll and the maintenance of
                                    leave time records, for other than teachers and custodial staff,
                                    appropriately designed and operating effectively?

                                •   Are internal controls over information technology appropriately
                                    designed and operating effectively?

Scope and Methodology        We examined the internal controls over financial condition, payroll
                             processing, maintenance of leave time records and information
                             technology for the period July 1, 2006 to September 12, 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 B of this report.

                        DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                 5
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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
                           planned to initiate 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 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

                           The Board is responsible for appropriately managing the financial
                           affairs of the District. To accomplish this, the Board must adopt
                           realistic budgets, and have reliable financial information available
                           to monitor operations. It is also the responsibility of the Board to
                           establish policies and related procedures for managing the District’s
                           finances. The District must also adhere to applicable legislation
                           regarding the establishment of reserves and limitations on the level
                           of unreserved, unappropriated fund balance.1

Fund Balance and Budgets   The unreserved, unappropriated fund balance at June 30, 2007 was
                           approximately $1.3 million, which was 5.6 percent of the ensuing
                           year’s budgeted expenditures, nearly twice the legally established
                           limit at that time (3 percent). In addition, we noted that the tax levy
                           increased by 5.7 percent or approximately $500,000 from the 2006-07
                           to 2007-08 fiscal year. Even though approximately $600,000 of the
                           District’s unreserved fund balance was appropriated annually to reduce
                           the tax levy, the levy increased by approximately $1.3 million (more
                           than 15 percent) over the past four years. In addition, appropriated
                           fund balance was not used as budgeted. The overestimation of
                           expenditures contributed to operating surpluses for two of the three2
                           fiscal years we reviewed.

                           The Superintendent and Board routinely overestimated operating
                           expenditures for instructional costs, employee benefits and
                           transportation, and routinely raised the amount of tax levied to meet
                           these unrealistic budget estimates. For the 2006-07 year, instructional
                           costs were overestimated by $674,050, employee benefits by $365,437
                           and transportation by $143,568, totaling $1,183,055. During the
                           2005-06 year, these costs were over budgeted by $912,086 and in
                           the 2004-05 year by $607,540. District officials indicated that they
                           over budgeted for these costs because the teacher contract expired on
                           June 30, 2006 and was not settled until April 30, 2008 and because of
                           fluctuating fuel prices.

Reserves                   District officials were unable to provide adequate justification for the
                           amounts set aside in three general fund reserves totaling approximately
                           $1.3 million at June 30, 2007, or for the approximately $1 million
                           in a bonded debt reserve, which was not being used to pay related
                           outstanding debt.

                           1
                             Unreserved, unappropriated fund balance is limited by Real Property Tax Law to
                           be no more than an established percentage of the ensuing year’s budget.
                           2
                             For the 2004-05 fiscal year, the District reported an operating deficit of
                           $101,164.
                     DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                          7
                                                                                                     7
                    Liability Reserve — This reserve was established by Board action on
                    June 8, 2004 to be used for property loss and liability claims against
                    the District, indicating that the amount to be funded was $600,000
                    plus earnings, with a probable term of five years. The balance as
                    of June 30, 2007 was $631,283. There has been no activity in this
                    reserve besides interest earnings since it was established more than
                    three years ago. Currently, the District has insurance coverage with
                    a $1 million limit per occurrence. Presumably, this reserve would
                    be used for settlements in excess of this limit. The District did not
                    provide any analysis of property loss or liability claims for which the
                    District would be using this reserve.

                    Insurance Reserve — This reserve was also established on June 8,
                    2004 by Board action. District officials indicated that it was intended
                    to be used to cover unexpected insurance premium increases. The
                    reserve was established with a limit of $500,000 plus earnings with
                    a probable term of five years. As of June 30, 2007 the balance was
                    $525,348. There has been no activity in this reserve besides interest
                    earnings. An insurance reserve is authorized by General Municipal
                    Law; however, such reserves can only be used to pay for losses, claims
                    or judgments against the District, not to pay premiums for insurance,
                    which would be used to cover claims against the District.

                    Unemployment Reserve — This reserve was also established by Board
                    action on June 8, 2004, and intended to be used for unemployment
                    payments. The reserve was established with a limit of $150,000
                    plus earnings, and as of June 30, 2007 had a balance of $157,604.
                    There has been no activity in this reserve besides interest earnings.
                    We further note that the District annually accounts for and therefore
                    levies taxes to fund these costs in the general fund. The average
                    annual expenditures over the three-year period July 1, 2004 through
                    June 30, 2007 were approximately $21,000. As such, it is unclear
                    what the Board’s intention is with regard to the amount set aside in
                    this reserve.

                    With respect to the three reserves established on June 8, 2004, the
                    Business Executive indicated that upon advice from a financial
                    consultant, the Board authorized the establishment of these reserves in
                    efforts to reduce excessive fund balance. However, the District could
                    not provide any documentation to support this assertion. Achieving
                    compliance by reserving funds for expenditures that are routinely
                    paid from the general fund tax levy is a non-productive use of District
                    revenues and has resulted in real property taxes at levels greater than
                    necessary.




8   OFFICE OF THE NEW YORK STATE COMPTROLLER
                       Bonded-Debt Reserve — As of June 30, 2007, the District reported
                       a reserve for bonded debt in its debt service fund in the amount of
                       $982,570. This reserve was established during the 2005-06 fiscal year
                       and has not been used since then. District officials indicated that this
                       reserve was funded with interest earned on bonds related to a project
                       from 2001. Such moneys are required by Local Finance Law to be
                       set aside and used only for project purposes or debt service for the
                       related bonds. However, the District has consistently budgeted for
                       the annual principal and interest payments on the related debt in the
                       general fund, and therefore levied taxes for this purpose.

                       The failure to adopt realistic budgets and properly establish and
                       maintain only necessary reserves has resulted in the accumulation of
                       a significant amount of resources. Had these moneys been reported as
                       general fund unreserved balance, real property taxes would necessarily
                       have been reduced, since the Board would have been required to
                       comply with the statutory limits for the amount of unreserved fund
                       balance that may be retained at year-end.

Recommendations        1. District officials should develop realistic revenue and appropriation
                          estimates for the annual budget, and monitor financial activity to
                          ensure that operations closely mirror the budget.

                       2. District officials should prepare a realistic estimate of the unreserved
                          fund balance at the end of the fiscal year for consideration by the
                          Board in developing the ensuing year’s budget.

                       3. The Board should ensure that an adequate level of fund balance
                          is appropriated to reduce the property tax levy and comply with
                          statutory requirements regarding the amount of fund balance that
                          can remain at year end.

                       4. The Board should review all reserves and reduce the balances
                          to reasonable levels in a manner consistent with respective legal
                          restrictions.




                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    9
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                                 Payroll Processing

                             A primary objective of the internal controls related to processing
                             payroll and accounting for leave time is to ensure that District officers
                             and employees are provided with only those amounts to which they
                             are entitled. Board-authorized contracts, employment and collective
                             bargaining agreements, and written policies and procedures provide
                             guidance regarding employee compensation and benefits. It is
                             important for the Board and appropriate District officials to oversee
                             the entire process (from approving individual employment contracts
                             and collective bargaining agreements to confirming that payments
                             are accurate) to ensure that the District pays only what it should for
                             compensation and benefits to officers and employees.

Board Minutes                It is important for the minutes of the Board’s proceedings to clearly
                             indicate the Board-authorized compensation and benefits for
                             employees. This authorization can be described in detail in the minutes,
                             or the minutes can refer to attached or bound original documents that
                             provide necessary detailed information.

                             The minutes of the Board’s proceedings did not clearly identify the
                             Board’s authorization of the terms of the non-affiliates’3 employment
                             agreement. The Board approved the salary package for these employees
                             on August 24, 2004, but documentation was not included in the Board
                             minutes or otherwise available. The salary and benefit information
                             was documented on a spreadsheet maintained by the personnel clerk
                             and references another group of employees’ collective bargaining
                             agreement for benefits, such as leave time. However, there was no
                             indication that the Board authorized the extension of these benefits
                             to these individuals. There was also no Board authorization for any
                             increases in salary that were beyond what was approved in the original
                             salary package or when the employee was originally hired. Since the
                             approval of the salary package, two new positions have been added
                             to the non-affiliate group and two positions have had turnover. When
                             the new employees were hired, the starting salary was stated in the
                             Board minutes, but the benefits and subsequent increases were not.
                             Nine employees are considered non-affiliates; their salaries totaled
                             approximately $380,000 for 2007-08.

Leave Time                   Leave accruals represent paid time off earned by employees pursuant
                             to the District’s policies and labor contracts. A good leave accrual

                             3
                              Non-affiliate staff members are the Business Executive, Superintendent of Buildings
                             and Grounds, transportation supervisor, secretary to the District Superintendent,
                             payroll clerk, personnel assistant (human resources), accounts payable clerk, and
                             two account clerks.

 10          OFFICE OF THE NEW YORK STATE COMPTROLLER
                       system must have supervisory oversight to ensure that leave time is
                       authorized and accounted for. To properly account for leave time, it is
                       essential that time sheets record the daily hours worked and the time
                       charges against the accruals. During each fiscal year, leave requests
                       should be entered into the system in a timely manner, accurately
                       reflecting the amount of leave time available to the employee. The
                       District must have adequate policies and procedures in place to govern
                       the crediting and use of leave time. These policies and procedures
                       should be authorized by the Board and periodically monitored to
                       determine if they are being accurately and consistently applied.

                       The District did not have adequate policies and procedures in place to
                       govern the use of leave time. Employees’ time sheets are maintained
                       on an exception basis by the District Clerk. Two of the employees
                       work in multiple buildings within the District and the Clerk would not
                       be aware if they were in attendance for the day. They notify the District
                       clerk of absences, either by phone or an email, and she records the
                       usage of leave time on the time sheets. The time sheets are kept on an
                       exception basis only, and do not record the daily hours worked. Nor
                       do they include the signature of the employee or a functional manager
                       to attest to the accuracy of the timesheet. Per the District, non-affiliate
                       employees are paid for unused vacation leave upon separation from
                       the District.

                       We tested two non-affiliate employees who retired during our scope
                       period. They were paid a total of $16,288 for unused vacation leave
                       and each had 200 unused sick leave days credited to the Employees’
                       Retirement System. Although the number of unused leave days used
                       to calculate these amounts agreed with leave time records, there was
                       no Board authority for such payments and there is no procedure in
                       place to ensure that the leave time remaining unused was accurate.

Recommendations        5. The Board should ensure that salary and benefits are provided to
                          employees based only on its official authorization. The District
                          Clerk should include changes in contract rates and benefits agreed
                          to by the Board in the minutes or, if they are too lengthy, the District
                          Clerk should specifically identify the agreement for reference.

                       6. The District should establish a formalized procedure for tracking
                          employee attendance that requires employees to affirm attendance
                          and use of leave time. Managers should attest to the validity
                          and accuracy of the information submitted to the District for
                          payment.




                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                    11
                                                                                            11
                         Network Security

                      Proper internal control over the District’s information technology
                      includes policies and procedures developed to ensure adequate
                      security over potentially sensitive information. The District’s financial
                      system is supported and stored on a server at BOCES, but extraneous
                      information, such as Business Office spreadsheets and documents
                      containing personnel information, is stored on the District-operated
                      server. The information technology (IT) director is responsible for
                      maintaining the District’s network and server. The District has an
                      acceptable use policy for students, staff and faculty. This policy
                      stipulates that employees and students are responsible for using the
                      network in an appropriate manner, and in the event it is used other
                      than intended they are subject to disciplinary action.

                      We identified weaknesses in the District’s controls over password
                      security. Given the sensitive nature of this issue, we have
                      communicated these weaknesses to District officials in a separate,
                      confidential letter. As a result of the weaknesses, the District is at an
                      increased risk of loss or unauthorized modification of its sensitive
                      information.

                      The District does not have a policy requiring the IT department to
                      be notified when an employee should be added or removed from
                      the network. We compared a list of employees that left the District
                      between July 1, 2006 and August 28, 2008 to a list of current
                      employees. There were 11 former employees still listed as users on
                      the network, one being the former IT director who left the District in
                      October 2007. By not removing former employees from the District’s
                      network immediately upon separation, the risk of unauthorized use
                      increases and creates a risk that unauthorized access could occur.

                      The District does not have a uniform virus protection update for the
                      networked computers. We tested four District computers and each
                      had a different date as the last update for virus protection. One had a
                      date that was two months prior to the date tested, while others were
                      more recently updated. According to the IT director, the District does
                      not have the ability to update all the computers at once, and they must
                      each be done individually. This lack of uniformity increases the risk
                      that a virus could infect the District’s network through a computer
                      with outdated protection.

                      While the District’s financial system is housed at and supported by
                      the BOCES server, there is sensitive financial-related information



12   OFFICE OF THE NEW YORK STATE COMPTROLLER
                       housed on the District server. The security of this server could be
                       compromised due to unauthorized access or a virus infection.

                       Disaster Recovery/System Backup — In the event of a system
                       malfunction, an adequate backup and disaster recovery plan would
                       provide the District with information to continue operations with
                       minimal interruption. The District’s financial accountability policy
                       indicates that backups should be created on a regular basis and stored
                       off site. The District does back up the local server on a daily basis,
                       but the backups are not tested. There is also no formalized plan or
                       timetable in place, and no detail regarding who is responsible and
                       the process to be followed to restore the backup. A formal disaster
                       recovery plan would assist the District in continuing operations
                       following an event that disrupts activity on the network.

                       Proper Use of District Resources — The District does not have a
                       policy to ensure the proper usage of the District website, which is
                       hosted on the BOCES server. The District’s website is used primarily
                       to provide information to the public and parents. However, the
                       District has allowed an outside organization to use the space to host
                       its own website without the IT Director’s knowledge, even though it is
                       maintained by the District’s network technician. There is a disclaimer
                       indicating that you are leaving the District website, but according
                       to the web address displayed, access remains through the WNYRIC
                       server. This type of usage of the District’s network results in potential
                       vulnerabilities.

                       District officials are unaware of, and do not periodically review,
                       who has access to their network, making them more vulnerable to
                       unauthorized usage and potential breaches of security. This increases
                       the risk that District resources could be misused. In addition, the lack
                       of a tested backup system or a disaster recovery plan increases the
                       risk that information could be lost and operations interrupted.

Recommendations        7. The Board, with the assistance of the IT director, should establish
                          a formalized disaster recovery plan and a formal procedure for
                          creating, testing and storing backups of the District’s electronic
                          information.

                       8. District officials should establish policies and procedures for
                          promptly notifying the IT department of the addition or termination
                          of staff with access to the system.

                       9. District officials should improve controls over password
                          security.



                  DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                  13
                                                                                          13
                     10. The District should review the usage of District resources by
                         outside organizations for appropriateness.




14   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                          APPENDIX A

                      RESPONSE FROM DISTRICT OFFICIALS

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




                          DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY     15
                                                                                     15
16   OFFICE OF THE NEW YORK STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY   17
                                                         17
18   OFFICE OF THE NEW YORK STATE COMPTROLLER
                                           APPENDIX B

                     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,
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, information technology, payroll processing
and the accounting for/control over leave time for further audit testing.

For financial condition, we reviewed the District’s annual reports and audit reports for the past three
fiscal years along with the adopted budgets and budget status reports that are provided to the Board.
We also interviewed District officials involved with developing budget estimates and monitoring the
budget. Board minutes were reviewed for information regarding the establishment and funding of
reserves.

For payroll processing, we focused on civil service and non-union employees, since they can convert
unused vacation leave to cash. We reviewed various employment contracts, collective bargaining
agreements and Board minutes regarding pay rates and benefits established for District employees.
Staff who process payroll were also interviewed to gain an understanding of the process followed to
generate payroll. We also reviewed attendance records and employee personnel folders for additional
documentation to support the use of leave time.

For information technology, we focused on network access to the District’s server, security, backup,
and recovery. District policies regarding IT were reviewed and District and BOCES employees were
interviewed. Information regarding network users and user access reports was also obtained and
reviewed.

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

                           DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY                   19
                                                                                                    19
objective. We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objective.




  20       OFFICE OF THE NEW YORK STATE COMPTROLLER
                                           APPENDIX C

           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 D

                             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