Executive Summary

Background and Scope of the Review

BOCES are organized under Section 1950 of the Education Law to provide shared educational programs and services to districts. These programs and services may include career and technical education (CTE) for students and adults, alternative education, adult basic education, special education, professional development, technology services, and school library services.

The Department received a complaint that three senior BOCES officials were receiving free automotive repair and maintenance services provided by CTE students. The objectives of our review were to determine if anyone was receiving free automotive repair and maintenance services and to assess the adequacy of the internal controls over the billing and payment process for automotive repair services provided by the CTE classes. Within the scope of this audit, we reviewed Monroe 2-Orleans BOCES’ practices pertaining to the prompt payment for CTE services or products; the proper accountability of this process; the selection of individuals to benefit from these services or products; and whether internal controls were adequate to provide reasonable assurance that Monroe 2-Orleans BOCES resources were safeguarded from misuse and properly accounted for in its official records. Because of the complaint, the review focused primarily on the billing and payment of completed work orders for maintenance and repair activities performed by the automotive classes for the period from July 1, 2004 through June 30, 2005.

Summary of Audit Results

With respect to the complaint that triggered this audit, the audit did not find that any BOCES officials were receiving free automotive repair and maintenance services. The audit found, however, that the Monroe 2-Orleans BOCES did not have adequate internal controls in place to ensure all automobile repair services were billed and paid for in a timely manner, and that because of the lack of adequate internal controls two senior BOCES officials and others using the BOCES auto repair service had their automobiles repaired and did not pay for the services in a timely manner. One of these administrators received bills for these services in May and June 2005, had paid almost half of the amount owed even before the BOCES was notified of the audit in August 2005. Both had paid the remaining balance owed as of August 15, 2005, the date the field work began.

As of June 30, 2005, the audit showed that although the complaint specified three individuals, the issues raised by the complaint were common to many staff and students, and that there was over $9,000 in receivables from staff and management for parts and supplies paid for by the Monroe 2-Orleans BOCES. Due to the poor controls over these receivables, the review found over $1,610 was due from employees/students no longer employed or in attendance at the BOCES. Some of the completed work orders date back to the 1999-2000 school year and there was a limited effort to collect the amounts due until the review inquired whether the amount would be written off.

The Monroe 2-Orleans BOCES had a policy for the sale of services and products provided through the CTE program, but it did not have written procedures to implement the policy and did not establish adequate controls over the billing and collection of amounts owed.

This does not foster a strong control environment or establish the appropriate tone at the top. There are opportunities for improvement for the Monroe 2-Orleans BOCES in this area as outlined in the body of the report.

The audit notes that all BOCES personnel have been extremely cooperative in providing the auditor with all information requested in a timely fashion. The BOCES staff have also been fully cooperative and forthright in answering all questions put to them during the audit process.

Comments of Monroe 2-Orleans BOCES Officials

Monroe 2-Orleans BOCES officials’ comments about the findings were considered in preparing this report. Their response to this report is included as Appendix B to this report.

Table of Contents

Introduction.. 1

Background.. 1

Objectives, Scope, and Methodology.. 2

Review Results. 2

Comments of Monroe 2-Orleans BOCES Officials. 3

Governance and Planning.. 4

Policies and Procedures. 4

Lack of Segregation of Duties. 5

Comments of Monroe 2-Orleans BOCES Officials. 5

Auditor’s Note. 5

Accounting and Reporting.. 6

Improved Invoicing Procedures Needed.. 6

The Accounting System... 6

Auditor’s Note. 7

Collection of Outstanding Invoices. 7

Comments of Monroe 2-Orleans Officials. 8

Appendix A – Contributors to the Report

Appendix B – Comments of Monroe 2-Orleans BOCES Officials

Introduction

Background

The mission of the Monroe 2-Orleans BOCES is to "provide quality, cost-effective educational services in partnership with school districts and the community in a manner that supports excellence and equity for all learners." Monroe 2-Orleans BOCES is headquartered in Spencerport, New York and serves 9 component districts and over 39,000 students. Monroe 2Orleans BOCES had general fund expenditures of $52 million and was ranked the 14th largest BOCES in the State, in terms of total general fund expenditures, for the 2003-04 school year.

The CTE programs, such as automotive repair and maintenance or carpentry, provide services or make products during the educational process. The automotive department may provide maintenance, repair or bodywork on cars. Carpentry classes may build picnic tables, doghouses or even houses for resale. Generally, these products and services should be available to the public, and be instructionally appropriate, i.e., done during class hours as part of the curriculum; any expenses incurred should be reimbursed by the beneficiary; and the billing, payment, and accounting for these services and products should be promptly completed. BOCES Administrative Handbook 5, Operating Procedures and Policies, which is the basis for Department guidelines, states that at no time should any benefit inure to any individual or organization as the result of public resources. Services and products are to be paid for at the time of delivery or pick-up. The BOCES does have a policy, Policy #4472 titled Sale of Supplies and Materials, which addresses this issue, however, at the time of the audit there was no corresponding procedures setting forth the specifics for implementing this policy.

Objectives, Scope, and Methodology

The objectives of our review were to determine if anyone was receiving free automotive repair and maintenance services and to assess the adequacy of the internal controls over the billing and payment process for automotive repair services provided by the CTE classes.

The review was initiated in response to a complaint stating three Monroe 2-Orleans BOCES' senior management were being provided free automotive repair and maintenance services. In accordance with our objectives, we assessed the process involved, the validity of the allegations, and the adequacy of the Monroe 2-Orleans BOCES internal controls in this area.

To accomplish our objectives, we interviewed the District Superintendent and pertinent staff during a site visit, analyzed a sample of cash receipts containing payments for these services and products, and reviewed work orders and invoices. Our concentration was primarily in the automotive cluster due to the nature of the complaint. We conducted our audit in accordance with Government Auditing Standards and designed our procedures to provide reasonable assurance as to the accuracy of financial data reviewed; the adequacy of internal controls in this area; and compliance with applicable statutory and regulatory requirements. We believe that the review provides a reasonable basis for our findings, conclusions, and recommendations.

Review Results

We identified the following areas needing improvement during our audit period:

· The Board has a written policy (Policy #4472) for the sale of services and products to staff and the public and it specifies that there must be an accurate and timely method for collecting amounts owed for goods and services provided to individuals. However, there were no corresponding written procedures to implement this policy and help ensure the timely collection of the amounts owed. The lack of such implementing procedures and the lack of internal controls over the billing and payment process led to the abuse of BOCES resources.

· As of June 30, 2005, the Monroe 2-Orleans BOCES had over $9,000 in outstanding receivables from staff and management for parts and supplies, which were paid for with BOCES funds.

· Of the $9,000, over $1,610 was due from employees and students no longer employed or in attendance at the BOCES. Some of the completed work orders in this group date back to the 1999-2000 school year and there was no apparent attempt made to collect these amounts due from individuals who had left the BOCES until the audit inquired whether the amount would be written off.

· Two senior Monroe 2-Orleans BOCES officials each had 22 repair bills, some dating back to September 2001, totaling $1,670 and $2,125 respectively, that had not been paid timely. However, during this period, the two individuals did make payments for other services and both individuals paid the outstanding balance in full on or before the first day of the audit.

· The review also found that Monroe 2-Orleans BOCES did not have policies and procedures in place for the timely invoicing and collection for the auto repair services. Customers sometimes picked up their vehicles without paying for service. Work orders were not always completed when services were completed, and in some cases, were not issued until months later. Most work orders were not dated or even signed by the customer acknowledging the terms and conditions, and the work order had no sequential number (Once the service is completed, the work order serves as the invoice).

· The system used to control the process is a manually maintained file of work orders and cash receipt tickets, and is not reflected on the official books or records of Monroe 2-Orleans BOCES. This lack of business office control makes the process to control accountability, collection, and dunning cumbersome at best.

· An account clerk in the CTE Department is responsible for the billing, collection, and the deposits. This raises serious internal control concerns since the individual is responsible for the entire process.

The improvement opportunities are addressed in more detail in the body of the report. The Board should give careful consideration to the recommendations to further improve the operation and management of the BOCES. To date, actions to rectify these problems have been taken and further actions are being taken as detailed in the BOCES comments attached hereto.

Comments of Monroe 2-Orleans BOCES Officials

Monroe 2-Orleans BOCES officials generally agreed with the matters contained in this report and their comments have been included where appropriate. Their response to the findings is included as Appendix B to this report.

The draft report was amended to acknowledge that Monroe 2-Orleans BOCES does have a policy to address the sale of services and products to staff and the public.

Governance and Planning

A BOCES’ board and management are responsible for establishing, implementing, and monitoring internal control systems. Internal controls are the policies, procedures, and practices designed and implemented to provide management with reasonable assurance that resources are safeguarded against waste, loss, and misuse; that operations are efficient and effective; that specific management objectives are achieved; that financial reports are reliable; and that the entity complies with applicable laws and regulations. The internal control systems must be built into the business processes to ensure core activities are accomplished effectively, efficiently, and economically.

The review found that BOCES needs to improve internal controls related to policies and procedures and segregation of duties.

Policies and Procedures

The Board has a written policy (Policy #4472) for the sale of services and products to staff and the public and it specifies that there must be an accurate and timely method for collecting amounts owed for goods and services provided to individuals. However, there were no corresponding written procedures to implement this policy and help ensure the timely collection of the amounts owed. The lack of such implementing procedures and the lack of internal controls over the billing and payment process is a serious deficiency. Effective administrative procedures should be adopted to implement the existing BOCES Policy # 4472.

The procedures should include a process to make school districts, government agencies, BOCES departments, and the general public aware of the opportunity to participate in the services provided by the CTE Programs and to prevent the appearance of favoritisms. The procedures should also provide for the equitable selection of customers.

The BOCES has a work order form which can be used to identify the services to be provided, and the terms and conditions. Once the work is completed, it becomes the invoice. The work order form contains a list of generic terms and conditions, which provide some degree of controls if the customer signs his/her acceptance before services begin and staff implements them. However, many times the customer does not see the work order form, hence, the terms and conditions, until the service is rendered and the work order is completed. The review also found that the CTE staff did not always follow guidelines on the work order. For example, they did not have a customer sign the work order before work begins or hold the vehicle until payment was received.

There were no written procedures implementing BOCES Policies #4472 to require prompt payment for goods or services. This contributed to the practice of late billings and late payments.

Recommendation 1: The Board should review its policy for the sale of services and products generated as a result of the CTE Programs and ensure it adequately addresses:

· public awareness and participation,

· equitable selection of customers,

· accountability for the services provided,

· accurate and timely billing and collection for amounts owed, and

· proper accounting and recording the revenue and expenditures for this program.

Recommendation 2: Management needs to establish procedures to implement the policy of the Board. These procedures should define the selection and scheduling of customers, the billing and collections process, and the internal controls over this process.

Lack of Segregation of Duties

An effective system of internal control provides for the segregation of duties so that no single individual controls all phases of a transaction. When key duties and responsibilities are segregated, an organization establishes checks and balances over its financial operations that reduce the risk that errors and/or irregularities will occur and go undetected.

The review found inadequate segregation of duties for the CTE account clerk in accounting for this process. This person is responsible for the accounting, billing, and collection of the invoices. In addition, she prepares and makes the deposit for paid invoices. She also reports to the Executive Principal, instead of the business office, which makes the need for segregation of duties more important.

Due to the lack of segregation of duties and other controls, the audit was not able to verify that all receipts were accounted for. The lack of this segregation of duties increases the risk that funds could be misappropriated and not detected in a timely manner.

Recommendation 3: Define the CTE account clerk’s current duties and then segregate those duties that need to be reassigned to ensure proper internal controls or institute adequate supervisory review to ensure proper internal controls over her duties. The external auditor could help in this determination.

Comments of Monroe 2-Orleans BOCES Officials

Monroe 2-Orleans BOCES officials concur with these recommendations, except they do not agree that it is appropriate to implement a practice of advertising its services to the public generally. Monroe 2-Orleans BOCES relies on word of mouth in the community that it does some automotive work for individuals as part of its curriculum.

Auditor’s Note

The audit agrees that the Monroe 2-Orleans BOCES does not need to formally advertise this service and should not compete with local automotive businesses. However, it should consider making the public aware of this service by putting a legal notice in the newspaper, making this policy more visible on its website, or other means. The emphasis of any such policy or notice should be that the service, although available to the public, is primarily to provide practical experience for the curriculum that is being taught to the BOCES students.

Final Report