Table of Contents

Introduction..................................................................................................................................................... 1

Objective, Scope and Methodology.................................................................................................. 1

Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES............................................... 2

Officials............................................................................................................................................................. 2

Opportunities to Improve Management Processes............................................................... 3

Disposal of Equipment.............................................................................................................................. 3

Opportunity Exists to Improve Accounting Procedures..................................................... 4

Confirming Purchase Orders............................................................................................................... 4

Policies and Procedures......................................................................................................................... 5

Documentation of Credit Card Usage............................................................................................. 6

Documentation of Allocation Methodologies........................................................................ 6

Control Over BOCES Vehicles............................................................................................................... 7

Improve Personal Property Accountability.............................................................................. 8

Opportunity Exists to Improve Accounting Practices.......................................................... 8

Student Activity Fund............................................................................................................................... 9

Recommendations..................................................................................................................................... 10

Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES............................................ 10

Officials.......................................................................................................................................................... 10

Auditor’s Note............................................................................................................................................. 10

Administrative Expenditures.............................................................................................................. 11

Supplemental Retirement Increase Deducted from Occupational Education Refund.............................................................................................................................................................. 11

Personnel Department Expenses Not Accounted for in the........................................... 11

Administrative Budget........................................................................................................................... 11

Recommendations..................................................................................................................................... 12

Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES............................................ 12

Officials.......................................................................................................................................................... 12

Cooperative Services................................................................................................................................ 13

Cooperative Services Provided to Private Entities............................................................... 13

Environmental Education Services Being Offered to Private Entity....................... 14

Business Office Support Services..................................................................................................... 14

Food Service Program Expenses are Understated............................................................... 15

CO-SER 710, Program Administration Being Used Improperly.......................................... 16

Environmental Education CO-SER Includes Some Weekend Activities and Some Ineligible Costs........................................................................................................................................... 16

Recommendations..................................................................................................................................... 17

Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES............................................ 17

Officials.......................................................................................................................................................... 17

Employment Preparation Education Program..................................................................... 18

Contact Hours Were Overstated..................................................................................................... 18

Student Folder Documentation Needs Improvement.......................................................... 18

Teacher Certification Documentation Needs Improvement........................................... 18

Hours of Instruction............................................................................................................................... 19

Recommendations..................................................................................................................................... 19

Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES............................................ 20

Officials.......................................................................................................................................................... 20

Appendix A - Contributors to the Report

Appendix B – Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES Officials

Appendix C – Audit Review Proceedings

Introduction

Boards of Cooperative Educational Services (BOCES) are voluntary, cooperative associations of school districts that have joined to provide educational programs or services more economically than each could offer by itself and are authorized by Section 1950 of the Education Law. BOCES may provide such services as special education for students with disabilities, occupational education, academic and alternative programs, summer school, staff development, computer services, educational communications and cooperative purchasing. Today there are 38 BOCES in New York State and all but 13 of the 705 school districts in the State are members.

Each BOCES submits an annual Cooperative Services Application (CO-SER) to the State Education Department (Department) for approval of each program and service offered to districts. After the BOCES obtains approval and determines budgeted program costs, it notifies the districts of available programs and the applicable rates.

Districts that belong to a BOCES are called component districts and are required to collectively pay the BOCES’ administrative costs. Districts that actually use the programs offered by a BOCES are called participating districts and are required to pay for the costs of those programs. Costs charged to the districts are based on budgeted costs and are adjusted at the year-end to reflect actual costs. Typically, a refund is issued to the districts to reconcile differences.

Cattaraugus-Allegany-Erie-Wyoming (CAEW) BOCES, headquartered in Olean, New York, serves 23 component districts which enroll more than 24,000 students. During the 1996-97 school year, CAEW BOCES ranked 19^th largest in the State with $30,406,493 in general fund expenditures.

Objective, Scope and Methodology

Pursuant to Sections 305 and 1950 of the Education Law, we audited management practices, records and documentation related to select operations of CAEW BOCES for the period July 1, 1996 through June 30, 1997. This was a financial related audit and our objectives were to:

· determine if cost allocations and transfers between funds and among CO-SERs are accurate and reasonable;

· determine if CAEW BOCES services comply with Department approved specifications and provide measurable cost savings to school districts;

· verify that CAEW BOCES only incurred costs that were reasonable and necessary to carry out its responsibilities;

· verify that CAEW BOCES budgetary process provides reasonable control over the expenditure of funds; and

· verify the accuracy and reliability of data reported to the Department for Employment Preparation Education (EPE) aid.

To accomplish our objectives, the audit reviewed applicable laws, regulations, policies and procedures; interviewed Department and CAEW BOCES management and staff; examined records and supporting documentation; sampled transactions on a non-statistical basis; and reviewed the CPA audited financial statements.

There is no State or BOCES process to assess whether CO-SERs result in measurable cost savings to school districts. As a result, the audit was not able to complete this portion of the second objective.

We conducted our audit in accordance with Government Auditing Standards issued by the Comptroller General of the United States. An audit includes examining, on a test basis, evidence supporting transactions recorded in the accounting and operational records and applying other audit procedures we considered necessary in the circumstances. An audit also includes assessing the estimates, judgments and decisions made by management. We believe that the audit provides a reasonable basis for our findings, conclusions and recommendations.

Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES

Officials

CAEW BOCES officials generally agreed with the findings and recommendations contained in this report. Their written response is included as Appendix B to this report.

Opportunities to Improve Management Processes

Management is responsible for establishing effective management processes or controls. In its broadest context, management controls include the plan of the organization, methods, and procedures adopted by management to ensure that its goals are met. These processes include such areas as planning, organizing, directing and controlling program operations. They include systems for measuring, reporting and monitoring program performance. The audit reviewed several processes that it determined significant to the audit objectives and found several opportunities for improvements, including more control over confirming purchase orders; some additional policies and procedures; and improved documentation with credit card purchases and allocation methodologies.

Disposal of Equipment

Section 1950, Subdivision 18, of the Education Law and Section 170.3 of the Regulations of the Commissioner of Education (Regulations) define surplus personal property as "property which has no known, immediate or currently foreseeable use to the board of cooperative educational services." It also states that the property be disposed of in accordance with procedures that provide for the sale of the surplus property to the highest bidder, except if the equipment is not marketable because it is damaged, obsolete or in poor condition and has proven not to be marketable after at least one prior attempt at competitive bidding.

CAEW BOCES' Policy 4320, BOCES Personal Property Accountability, states that "All sales of surplus and absolute personal property shall be open to the public. Notice of the sale and/or request for bids shall be made through advertisements in the local newspapers and other appropriate means to assure public awareness."

CAEW BOCES purchased two Dodge Ram pickup trucks in July 1996 with plows for $21,148 each. Each truck was sold to a component school district in March 1997 for $10,002 each. CAEW BOCES provides component districts the opportunity to purchase good, serviceable equipment from CAEW BOCES' inventory at considerable savings by declaring the equipment surplus prior to the expiration of their useful life. It limits the offer to the component districts by polling them first before offering the equipment to the public.

The vehicles were delivered to the purchasing component district in June and September of 1997. At the time of sale, the trucks' mileage was 1,600 and 2,583 respectively. The audit consulted the Kelly Blue Book, as of October 1998 (two years after the delivery to the districts), and determined that the trade-in value for these trucks with 10,000 miles would be $17,225 each. Based on this calculation, the audit considered the transaction to the school districts an imprudent use of resources as the audit did not consider these trucks at the end of their useful lives at the time of the sale. The premature replacement of these vehicles by CAEW BOCES increased the cost of operations for CAEW BOCES.

CAEW BOCES officials disagree with the finding and maintain that this has been a long-standing practice and their components are very satisfied with the arrangement.

Opportunity Exists to Improve Accounting Procedures

The Office of the State Comptroller's Uniform System of Accounts for Boards of Cooperative Educational Services (System of Accounts) states that "Financial statements must be presented in conformity with generally accepted accounting principles; accounting must be in compliance with legal provision. If a conflict exits between these two, financial reporting must be based on generally accepted accounting principle and, if necessary, legal compliance will be reported in supplemental schedules."

One generally accepted accounting principle is the matching concept. The matching concept requires that revenues and related costs be matched in determining net income for a specified period.

The audit found ten desktop computers ($14,000) were charged to the School Food Management: Itinerant CO-SER 316; however, these computers were being used in CAEW BOCES' Instructional Support Services (ISS).

CAEW BOCES officials stated that, during the 1995-96 school year, CO-SER 316 needed to purchase three expensive laptop computers (approximately $14,000). The computers were needed so each supervisor could satisfy the change in the federal regulations for menu planning. The regulation changes were after the budget process, therefore there were no funds available in CO-SER 316. CAEW BOCES officials used available ISS funds to make the laptop purchases.

The funds to purchase the ISS equipment postponed from the 1995-96 budget were incorporated into CO-SER 316 in the 1996-97 budget.

CAEW BOCES officials agree with this finding; however, it was their intention not to have to increase budgets at such a late date in the school year.

Confirming Purchase Orders

The Financial Management Guide for Local Governments (Guide), issued by the Office of the State Comptroller, Volume 2, Subsection 8.3050, defines confirming purchase orders. It states, "A verbal order, subject to subsequent confirmation by a written purchase order, may be given in cases where necessity for immediate action exists. Naturally, such a deviation from 'the norm' should have a very limited use. The individual placing such an order should justify the need for this action. Lack of proper planning should not be considered a valid reason for this process."

CAEW BOCES' purchasing regulation manual states that "A verbal order, subject to subsequent confirmation by a written purchase order, may be issued only in cases where a bona fide emergency situation exists which can be handled only by this procedure."

The audit took a very small sample of purchases requiring purchase orders and noted several of the purchases were made using confirming purchase orders. Further examination of these purchases did not indicate emergency situations.

CAEW BOCES officials agree with this finding and are improving controls over verbal orders.

Policies and Procedures

The Guide, Volume 2, Subsection 11.1010, states that effective internal control systems are designed to ensure management that all resources entrusted to their care are used in accordance with all laws, regulations, policies and sound business practices, where applicable. In addition, all resources should be safeguarded against waste, loss and misuse.

A component of an effective internal control structure is to establish written policies and procedures that define management’s position and guide employees in performance of their duties. Current, updated policies and procedures allow a comparison of how things are actually done to how they are supposed to be done so that corrections can be made when necessary.

CAEW BOCES did not establish adequate written policies and procedures in certain areas for which such management controls could be beneficial, such as:

· Non-overnight travel reimbursement subject to IRS withholdings;

· Pre-approval of overtime;

· Personal use of office and cellular telephones; and

· Use of credit cards.

CAEW BOCES’ travel policies and procedures lacked:

· Dollar limits on staff food and hotel expenses:

· Dollar limits on personal calls home when in overnight status;

· Prohibition against guest travel utilizing CAEW BOCES credit or incurring expenses for CAEW BOCES, regardless of subsequent reimbursement; and

· Travel advance instructions.

CAEW BOCES officials agree with all of the above except that:

· There is not enough non-overnight travel reimbursement to justify a special policy.

· A Purchasing Agent reviews all telephone bills for inordinate use and this is a sufficient control.

· Credit cards are very strictly limited.

In addition, they do not feel that it is necessary to put a dollar limit on personal phone calls, and they now have a dollar limit on staff food and lodging expenses.

Documentation of Credit Card Usage

The Guide, Volume 2, Subsection 8.1020, states that a claim for payment must include sufficient detail to permit a satisfactory audit by a person who is entirely unfamiliar with the transaction.

In relation, Subsection 8.1025 (page 10) states, “The board must be satisfied that the amounts claimed were actually and necessarily incurred by the claimant in the performance of official duties or in the authorized attendance at a conference or training school. Each claim must be in such detail, with appropriate documentation, that the board can see exactly and precisely what goods were purchased, services rendered or expenses incurred by the claimant. As a general rule, a claim must contain enough detail and documentation so that the board is supplied with sufficient information concerning the nature of the claim to enable it to determine whether the claim represents a lawful and proper charge.”

The documentation supporting the monthly payments to American Express did not always contain the vendor receipts, making reconciliation and verification of the charges shown on the statement difficult. The audit sample included an examination of the November, December and February statements. The statements revealed $2,798.17 in charges with only $351.63 (12.56 percent) of the charges being supported by actual vendor receipts. As a result, there is less assurance that only actual and necessary expenses were incurred.

CAEW BOCES officials agree with this finding but add that only the District Superintendent and Assistant District Superintendent use the card; the total billing for the year was less than $6K and some of the original receipts were sent to Questar BOCES for the District Superintendent's SURR related travel and Questar BOCES reimbursed CAEW BOCES; and $1,240 was for a phone registration for Board travel to a national conference that could be easily verified.

Documentation of Allocation Methodologies

The System of Accounts (pages 4-7) states, "The Education Law requires that the net cost of operating a BOCES service shall be allocated among participating districts. To facilitates such allocation, this system requires a separate accounting of revenues and expenditures for each service program." Expenditures should be charged directly to the pertinent service involved and expenditures related to more than one service should be prorated accordingly.

Section 1950 (4)(d) of the Education Law states those component districts that do not participate in a cooperative service are not required to pay any share of the expenditures for such service. In order to ensure that component districts pay only for services received; cost allocations between funds and among CO-SERs should be accurate and reasonable.

The audit reviewed the accounting for salaries of 19 employees. Of the 19 employees, nine had their salary allocated to two or more CO-SERs. Allocations were supported by timesheets for two of the employees. For the seven remaining employees, CAEW BOCES allocated the various salaries based on estimated days worked per week on a CO-SER, time spent in a CO-SER, and/or available funds in a CO-SER. However, CAEW BOCES did not maintain documentation to support the basis of allocations. Alternative methods to verify allocations were not available or could not be used to determine appropriate allocations. For example, job descriptions were very generalized; timesheets were not required for salaried employees; and time studies were not done. Without the necessary documentation to support the allocation of the salaries, the audit cannot be certain that the allocations are appropriate.

CAEW BOCES officials agree with the finding; however, they feel that the budget process, wherein component districts review the budgets and the FTEs assigned to those budgets, was a sufficient review to determine appropriateness.

Control Over BOCES Vehicles

The Guide, Volume 2, Subsection 11.1010, states, "Effective internal control systems are designed to ensure management that all resources entrusted to their care are used in accordance with all laws, regulations, policies and sound business practices, where applicable. In addition, all resources should be safeguarded against waste, loss and misuse. It is generally recognized that good internal controls make the commission of wrongful acts more difficult."

Good business practices dictate that adequate internal controls over assets should include a system to track the locations and use of assets to ensure they are only used for authorized purposes. In addition, vehicles should bear vehicle logos or markings that easily identify the vehicle as belonging to the BOCES. This deters unauthorized use as a clearly marked vehicle is visible to the BOCES' constituency who may question BOCES officials on its use. The audit observed that 11 of the 14 vehicles inspected at the Olean Center were not marked as CAEW BOCES vehicles.

CAEW BOCES officials disagree with the finding and feel that vehicle decals are not necessary and that the "official" plates are sufficient control. Decaling the vehicles in a sparsely populated but large rural area, such as this BOCES, would cause greater problems, such as numerous false, unauthorized vehicle use reports.

Improve Personal Property Accountability

The Guide, Volume 1, Subsection 3.2010 (page 1), states that it is important to maintain adequate fixed asset records to meet the requirements of Generally Accepted Accounting Principals (GAAP) and to control fixed assets and plan replacements. In Subsection 3.2020 (page 3), it states that the identification of fixed assets is necessary for internal control and audit trail purposes. "If a local government can identify a particular fixed asset by some other method (serial numbers on typewriters, or calculators, engine number, complete description, etc.) decaling is not required."

The Guide, Volume 2, Subsection 11.1010 (page 1), states "Effective internal control systems are designed to ensure management that all resources entrusted to their care are used in accordance with all laws, regulations, policies and sound business practices, where applicable. Also, all resources should be safeguarded against waste, loss and misuse."

Section 1950, Subdivision 18 of the Education Law and Section 1703 of the Regulations require, "Procedures for the perpetual inventory of all personal property, including the periodic inventory of valuable personal property having a unit resale value of $500 or more on at least an annual basis, and the periodic inventory of all other personal property at least once every two years."

The audit performed a small review of purchased equipment to determine if they were being accounted for properly. A small test of inventory was done with no exceptions, except those already noted in the management letter from CAEW BOCES' certified public accountant, and that there were no inventory tags.

CAEW BOCES officials agree with the observation and point out that they have been implementing corrections as a result of the 1996-97 management letter. In an effort to address the need to improve CAEW BOCES' personal property accountability, CAEW BOCES officials have:

· Established a centralized receiving operation at the Olean Center;

· Updated the accuracy of Fixed Assets Inventory Lists; and

· Considered the purchase of software that would bar code the items and provide the accounting for the perpetual inventory system.

Opportunity Exists to Improve Accounting Practices

Education Law, Section 1950(4)(d), indicates that any component district that does not elect to participate in a specific cooperative service shall not be required to pay any share of the expenditures provided in the budget such as salaries of teachers or other personnel employed in providing such services, for equipment and supplies for such service, or for the transportation of pupils to and from the place where such service is maintained (excluding administrative expenses).

The System of Accounts states "…expenses will be charged to the pertinent service on the basis of invoices received. Invoices which contain items for two or more services will, of course, be prorated accordingly."

The audit found two instances where invoices were not charged to the "pertinent service." One was an invoice for welding supplies ($1,130), which was requested by an occupational education teacher and was considered inappropriately charged to operation and maintenance because of the quantity ordered. The second invoice was for conference expenses for the director of instructional support services to attend a Technology/Learning and Staff Development conference. These expenses were reported under CO-SER 316 (School Food Supervisor). The audit considered that this expense would be related to the director and the director's salary expenses were reported in CO-SER 710 (Program Administration).

CAEW BOCES officials agree with the finding.

Student Activity Fund

Section 1 of Article 8 of the New York State Constitution states that “No county, city, town, village or school district shall give or loan any money or property to or in aid of any individual, or private corporation or association, or private undertaking.”

Section 172.1 of the Regulations defines a student activities fund as, "An organization within a school district whose activities are conducted by students and whose financial support is raised other than by taxation or through charges of the board of education…."

The Vocational Industrial Club of America (VICA) is a national organization serving high school and college students and instructors who are enrolled in training programs in technical, skilled, and service occupations, including health occupations. VICA clubs existed at CAEW BOCES during the audit period and a student activity fund for each location was used to account for their activities.

The audit found that CAEW BOCES donated public funds to the VICA extra classroom activity fund. This occurred when VICA members performed maintenance on CAEW BOCES vehicles. The maintenance occurred after school hours, on CAEW BOCES property, using CAEW BOCES equipment.

VICA members would perform routine vehicle maintenance, such as lubrication, oil and filter change, and minor repairs, such as bulb replacement. VICA issued invoices to CAEW BOCES, which included the cost of the lubricating fluids, parts used, and a $3 labor charge per invoice. VICA members were not paid for this service so the labor charge is the equivalent of a donation to the extra classroom activity fund.

CAEW BOCES officials agree with this finding.

Recommendations

1. Consult with CAEW BOCES' independent accountants for the useful life of vehicles and utilize the equipment until it is no longer economically feasible to do so.

2. Increase the program budgets when justified and assesses the components accordingly.

3. Take measures to limit the number of confirming purchase orders to those that are of an emergency nature.

4. Implement and/or amend policies and procedures to require prior approval for overtime; establish dollar limits on personal telephone calls; prohibit guests from using the credit of CAEW BOCES; and establish travel advance procedures.

5. Establish a policy governing the use of all credit cards.

6. Document and keep the methodologies used in allocating resources so that an audit trail exists and the documentation can be presented if required.

7. Decal CAEW BOCES-owned vehicles using logos or other markings to clearly identify them as CAEW BOCES vehicles.

8. Continue complying with the management letter and personal property accountability policy, and supply a proposed completion date.

9. Use budget transfers to make funds available and refrain from the practice of charging invoices to related CO-SERs if the correct CO-SER has no funds available.

10. Reimburse VICA only for the cost of materials.

Comments of Cattaraugus-Allegany-Erie-Wyoming BOCES

Officials

CAEW BOCES officials agree with recommendations 2, 3, 5, 6, 8, 9, and 10. They partially agree with recommendation number 4 and disagree with recommendations 1 and 7. In regard to recommendation one, CAEW BOCES officials feel the practice of selling vehicles has been a long-standing practice which the component districts support. In regard to number 7, they feel that official plates are sufficient control.

Auditor’s Note

BOCES vehicles are funded with public resources and the identification of vehicles as such is an appropriate control.

Administrative Expenditures

Education Law, Section 1950(4)(b)(1), states that the Administrative Budget shall include, but need not be limited to, any and all expenditures associated with the Board, office of the District Superintendent, general administration, central support services, planning and all other administrative activities. Each component district is responsible for a proportionate share of the costs included in the Administrative Budget, irrespective of its participation in the elective services that it may request.

The audit found that CAEW BOCES did not fund the Administrative Budget increase appropriately and did not include the expenses of their personnel operations in the Administrative Budget.