Table of Contents

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

Background.................................................................................................................................................... 1

Objectives, Scope and Methodology................................................................................................ 1

Comments of Questar III Officials...................................................................................................... 2

Employment Preparation Education.............................................................................................. 3

Reported Contact Hours Were Overstated................................................................................. 3

Recommendation.......................................................................................................................................... 4

Comments of Questar III Officials...................................................................................................... 4

Report Card........................................................................................................................................................ 5

Data Accuracy and Supporting Documentation...................................................................... 5

Career/Occupational Education................................................................................................................... 5

Adult Education............................................................................................................................................... 5

Recommendation.......................................................................................................................................... 6

Comments of Questar III Officials...................................................................................................... 6

Chapter 602 Report........................................................................................................................................ 7

Report Accuracy and Documentation............................................................................................ 7

Opportunities to Improve Management Processes............................................................... 8

General Business Office Controls Need Improvement......................................................... 8

Safeguarding Assets.................................................................................................................................. 8

Segregation of Duties............................................................................................................................... 9

Recommendation.......................................................................................................................................... 9

Comments of Questar III Officials.................................................................................................... 10

Data Collection and Use......................................................................................................................... 11

Questions 1 and 2........................................................................................................................................ 11

Questar III’ Response................................................................................................................................ 11

Question 3....................................................................................................................................................... 12

Questar III’ Response................................................................................................................................ 13

Question 4....................................................................................................................................................... 17

Questar III’ Response................................................................................................................................ 18

Question 5....................................................................................................................................................... 19

Questar III’ Response................................................................................................................................ 19

Follow Up – Recommendation Implementation Plan........................................................ 20

Appendix A – Contributors to the Report

Appendix B – Comments of Questar III Officials

Introduction

Background

Public and legislative attention has been turned to data provided by Boards of Cooperative Educational Services (BOCES) and school districts with the issuance of New York State Board of Cooperative Educational Services Report Cards (Report Cards). Chapter 436 of the Laws of 1997 made Report Cards available to the public on April 16, 1999. Graphically presented, the Report Cards summarize program accomplishments and services BOCES provide for children and adults.

In addition, Chapter 602 of the Laws of 1994 added Section 215-b to the Education Law to require the Commissioner of Education to prepare and submit to the Governor, the President Pro Tem of the Senate, and the Speaker of the Assembly, an annual report beginning January 1, 1996. The Chapter 602 report details certain financial and statistical outcomes of BOCES, tuition costs for selected programs, per pupil cost information and aggregate expenditure data for BOCES administrative, capital and service functions. The report is to include changes from the year prior to the report year for all data.

BOCES are organized under Section 1950 of the Education Law. Chapter 474 of the Laws of 1996 amended Section 305 of the Education Law to require the New York State Education Department (Department) to perform fiscal audits of BOCES at least once every three years.

Questar III is headquartered in Castleton, New York and serves 21 component districts which have enrollments of more than 39,000 students. Questar III ranked 23rd largest in the State, in terms of total fund expenditures, for the 1998-99 school year.

Objectives, Scope and Methodology

Pursuant to Sections 305 and 1950 of the Education Law, we audited management practices, records and documentation related to the data contained in the BOCES Report Card and the Chapter 602 Report for the period July 1, 1998 through June 30, 1999. We followed up on the status of prior recommendations made in audit report number BOC–0797-1 and reviewed the Employment Preparation Education (EPE) Program for the period July 1, 1998 through June 30, 1999. The objectives were to:

· evaluate the adequacy of management controls over data reported to the Department and obtain reasonable assurance that the data are valid and reliable.

· determine how BOCES use data to monitor the performance of the districts within its supervisory district.

· determine how BOCES use data to monitor student outcomes.

· evaluate the wide ranges of costs identified in the Chapter 602 Report and understand the reasons for the variances.

· determine if EPE claims are adequately documented.

· follow up on the findings and recommendations from the previous audit and determine whether timely and adequate corrective actions were implemented.

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

We conducted the 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 records and applying other audit procedures 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 Questar III Officials

Questar III officials agreed with the findings and recommendations in this report. Their comments have been included where appropriate and their response is included as Appendix B to this report.

Employment Preparation Education

Questar III operates an Employment Preparation Education (EPE) Program. This categorical aid program serves students 21 years of age or older who have not received a high school or equivalency diploma.

Part 168.4 of the Regulations of the Commissioner of Education (Regulations) states that EPE Program funds may be spent for personal services, employee benefits, equipment, supplies and materials, contractual services, travel expenditures, staff development and training, and other expenditures approved by the Commissioner. These expenditures are to be used only for EPE Program purposes.

Questar III claimed a total of $279,233 in EPE aid for the period July 1, 1998 through June 30, 1999, based on reported contact hours. However, they only received $252,440 due to a prior year overpayment of $26,793. The audit found that Questar III needs to improve its system for identifying, documenting and accumulating certain EPE contact hours.

Education Law Section 3602 states that when total revenue received exceeds the entire cost of such program, State aid payable in the following year will be reduced by the amount of such excess. This means that Questar III must refund the larger of revenues disallowed or expenditures disallowed, but not both. The audit report will be used by the Department to adjust future aid received by Questar III.

The audit found that Questar III claimed hours for students who had passed the GED test and claimed excess hours for students in overlapping classes. The total net contact hours ineligible for State aid amounts to 1,447 which equates to $5,687 in EPE aid.

Reported Contact Hours Were Overstated

Education Law Section 3602(24) states that school districts and BOCES providing approved programs shall be eligible for aid for the attendance of persons 21 years of age and older who have not received a high school diploma or a high school equivalency diploma recognized by New York State. Students must attend EPE programs provided by such school districts or BOCES, which lead to a high school diploma or high school equivalency diploma.

Regulation 168.2(a) defines EPE programs as programs leading to a secondary credential for individuals who are at least 21 years of age and who have not received a high school diploma or equivalency diploma issued by any state or territory of the United States.

To ensure that EPE revenues paid to the district or BOCES are appropriate, contact hours must be documented and provided to eligible students. Otherwise, such contact hours will be questioned upon audit and revenues will be reduced accordingly.

The audit found the following conditions related to the EPE Program:

· Questar III claimed EPE hours for students who had passed the New York State General Educational Development (GED) test. The audit compared Questar III' EPE database to the Department's GED database and found eight EPE students who had a GED diploma. BOCES found that six of the students falsely stated they did not have a diploma, so those hours are eligible. Two students were claimed as the result of input errors and the audit disallowed their hours (148 contact hours, or $582, in EPE aid for 1998-99.

· The audit found one instructor who reported contact hours for students in a morning Adult Basic Education (ABE) class that exceeded the actual three hours of class time. Questar III explained that some students attended both the morning and afternoon classes. However, the student's name only appeared on the morning class roster. The audit reviewed the attendance records for the entire year and found 20 students who claimed more than three contact hours per class. The audit disallowed all hours above the three hours for a total of 152 contact hours, or $597, in EPE aid.

· Another instructor had morning and afternoon classes in ABE and High School Equivalency (HSE) with overlapping start/end times. The morning ABE/HSE classes ended at 12:30 pm, while the afternoon ABE/HSE classes started at 11 am. Students who attended both classes were claimed for eight contact hours. Allowing for a 30-minute lunch, the maximum hours for both classes would be six. Questar III could not explain why the instructor claimed eight contact hours instead of six. Therefore, the audit is questioning two of the eight hours, or 25 percent of the total ABE/HSE hours, at the Troy Access Center (4,589 x 25 percent = 1,147 hours) or $4,508 in EPE aid (1,147 hours x $3.93).

Overall, Questar III was compliant with claims for EPE Program aid. Some improvement is needed in maintaining attendance information. The audit determined that 1,447 out of a total 71,052 contact hours, or two percent of total EPE hours reported, were not eligible for EPE aid. As a result, Questar III will need to make restitution of $5,687 (1,447 hours x $3.93 per hour).

Recommendation

1. Improve procedures to ensure that reported contact hours reflect eligible students and accurate attendance.

Comments of Questar III Officials

Questar III officials concur with this recommendation.

Report Card

New York State’s Board of Cooperative Educational Services Report Cards (Report Cards), required by Chapter 436 of the Laws of 1997, were made available to the public on April 16, 1999. Graphically presented, the Report Cards summarize program accomplishments and services BOCES provide for children and adults. They are intended to be used as a tool for the continuous improvement of BOCES’ programs and services, and for providing information to communities.

Data included in the Report Cards must be valid and reliable in order to be used effectively. BOCES officials are given the opportunity to review the Report Card prior to its release.

The Report Card addresses: Career/Occupational Education, Alternative Education, Adult Education, Special Education, Curriculum and Professional Development, Technology, the State Testing Program, and the 1996-97 Expended Budget. The State Testing figures are provided by the Department, not BOCES, so those figures were not included in the scope of the audit.

Data Accuracy and Supporting D ocumentation

An objective of this audit was to determine the accuracy of the Report Card data and the adequacy of the supporting documentation. Questar III revised the original 1997-98 Report Card due to inaccuracies found with the database in use at the time. Once a new database was employed, a revised Report Card was produced. Because the published Report Card was admittedly inaccurate, the audit focused on the revised Report Card.

Although several areas were noted where Report Card data were not accurate or supported by schedules and/or student listings, overall the Report Card data were reasonably accurate considering this was the first year of the Report Card. The differences are noted as follows:

Career/Occupational Education

The Department did not specify which date to use for enrollment figures or which students to include or exclude in the data reported. Tuition data are taken from the Chapter 602 Report. Placement data were determined by a telephone survey of prior year completers.

· Completers: Questar III reported 246, but student listings totaled 214, a difference of 32.

· Placement Rates: Questar III reported 165, but no supporting documentation was provided for the telephone survey.

Adult Education

BOCES sponsor both adult occupational education programs and adult basic education courses. Placement results for the 1997-98 adult occupational education programs will not be available until late Spring because agencies have 180 days from the date of graduation to follow up on any program which requires a license or exam. The results will be reported in the new Report Card.

· Unduplicated Enrollment: 3,415 reported; 3,418 documented (understated by 3).

· Improved Literacy for Reading Level 6-8.9: 177 reported; 335 documented (overstated by 158).

· Improved Literacy English for Speakers of Other Languages (ESOL) I & II: 0 reported; 96 documented (understated by 96).

In addition, the Report Card was not sent to local newspapers, as required by law.

The BOCES Report Card was new in 1997-98 and, as such, the Department was not certain which report statistics would best represent a BOCES outcome. The BOCES Report Card has been modified each year since the first report. Reporting inconsistencies could be due in part to a lack of definitive Department guidelines while the Report Card format is changing.

Questar III program areas provide all reported figures to the Computer Services Specialist, who summarizes them for the Report Card. Supporting documentation is not attached to the reported figures, so the program areas are relied upon for accuracy. This could explain the few differences in the Report Card data.

Overall, the few errors found in the Report Card should not materially affect the information that is presented. Questar III has questioned the usefulness of the Report Card in terms of reflecting performance and feels that the Report Card is more quantitative than qualitative.

Recommendation

2. Improve procedures to ensure the accuracy of Report Card data.

Comments of Questar III Officials

Questar III officials concur with this recommendation.

Chapter 602 Report

Chapter 602 of the Laws of 1994 added Section 215-b to the Education Law to require the Commissioner of Education to prepare and submit to the Governor, the President Pro Tem of the Senate, and the Speaker of the Assembly, an annual report (Chapter 602 Report) beginning January 1, 1996. The report is also provided to all school districts and BOCES.

The Chapter 602 Report details certain financial and statistical outcomes of BOCES, tuition costs for selected programs, per pupil cost information, and aggregate expenditure data for BOCES administrative, capital and service functions. In accordance with the statute, the report is to include changes from the year prior to the report year for all data.

Report Accuracy and Documentation

An objective of the audit was to determine the accuracy of the Chapter 602 Report data, the adequacy of the supporting documentation, and to evaluate variances with statewide averages.

The audit compared the Chapter 602 Report data to the data in the Annual Financial and Statistical Reports of BOCES (SA-111), and found the following differences:

· The tuition for Special Education Option II was overstated by $689 ($11,507 instead of $10,818).

· Net Administrative expenditures allocated to components were understated by $10,218.

Questar III used the following methodologies to report certain statistics on the Chapter 602 Report. The Department has not provided definitive criteria concerning how many hours to use in determining employee FTE nor about which students should be included in the Alternative Learning Program enrollment.

· Questar III is using a five-hour day for reporting FTE employees for itinerant services. We have noted that other BOCES use different lengths of time to determine FTEs. We have found that the length of time varies from five to seven hours.

· The Alternative Learning Program enrollment only includes full-day students, not students enrolled in Vo-Tech or GED. We have found that other BOCES have included these students in their enrollment figures.

No significant effect resulted from the few differences noted. Questar III was accurately reporting most data in the Chapter 602 Report and there were no major variances with statewide averages.

No recommendation is being made.

Opportunities to Improve Management Processes

Management is responsible for establishing effective management processes or controls. Management controls include establishing the goals and objectives of the organization and the methods and procedures adopted by management to ensure that the goals are met. These processes include such areas as planning, organizing, directing and controlling program operations. The audit reviewed several processes and found opportunities for improvement in the areas of hiring of retirees and the policy on awards and acknowledgments.

General Business Office Controls Need Improvement

The Office of the State Comptroller’s Financial Management Guide (Guide), Volume 2, Subsection 11.0101, 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.

An effective internal control system can be comprosed of several elements: safeguarding assets; segregating duties; establishing written procedures; and employing supervisory controls over operations. Safeguarding assets is important to prevent the loss or misuse of assets. Segregating duties restricts one employee from having too much control over a particular process. Too much control increases the risk of loss for that area. Supervisory controls are necessary to ensure that processes are monitored effectively. These are just some of the elements of an effective system of internal controls.

The Guide provides a Self-Evaluation Questionnaire in Subsection 11.3020. One of the subsections of the questionnaire deals with the cash management function and has several questions dealing with bank reconciliations and cancelled checks.

Safeguarding Assets

· Questar III keeps cash receipts in a safe that is locked overnight but unlocked during the day. The safe is located in a closet that contains blank check stock and cash receipt forms and is also unlocked during the day.

· Questar III Education Centers send cash receipts to the Administration Office, but do not receive confirmation that the cash receipts were received and deposited. This would increase accountability and lower the risk that such receipts could be diverted without detection.

· Questar III did not record cash receipts received in the mail, but has since begun to do so. This was implemented after the 1998-99 school year in response to fraud that occurred at another BOCES.

Segregation of Duties

· One method of properly segregating duties for the cash function would be to designate an independent person to perform the bank reconciliations. At Questar III, the assistant fiscal officer performs the monthly bank reconciliations. The audit does not believe the assistant fiscal officer is independent of the cash function because she maintains the General Ledger and reports to the Treasurer, who also has several financial responsibilities. In addition, the audit does not believe that the reconciliation process was complete because there is no review of cancelled checks. Controls would be improved by assigning an independent person the responsibility of preparing the bank reconciliations and management should periodically review the bank reconciliations.

· The Treasurer also has many duties that should be segregated. The Treasurer is responsible for many cash functions and operates with little oversight. The Treasurer is responsible for the accounting entries for grant revenues and expenses, preparing all journal entries, and has access to cash receipts, blank check stock, and cash receipt books. The Internal Auditor does spot-check a few of the hundreds of journal entries.

· Proper segregation in the payroll process involves restricting payroll clerks from accessing signed payroll checks. Until recently, Questar III clerks delivered signed payroll checks to employees. This by itself may not be very material; however, the audit determined that management did not review the payroll register for accuracy. These two factors increase the risk that improper paychecks may be issued without detection. Payroll clerks no longer deliver signed payroll checks to employees and Questar III has since instituted procedures for the Personnel Director to certify the payroll. These procedures were provided to us. Questar III also plans to perform an annual payout in the future.

An independent review of all of the Treasurer’s duties would provide a compensating control, since the Treasurer has control over so many financial areas. Questar III has suggested using their independent auditors to perform this function.

Questar III officials agree that improvements could be made in internal controls over the safeguarding of cash receipts and the segregation of duties in the bank reconciliation, grants, and payroll areas.

Recommendation

3. Improve procedures to ensure the safeguarding of cash receipts and the segregation of duties in the finance and payroll functions.

Comments of Questar III Officials

Questar III officials concur with this recommendation.

Data Collection and Use

BOCES have been asked five questions regarding data collection and use as part of the audit scope. The questions are being asked to ascertain best practices that might be shared among the BOCES. The following are the responses of Questar III’ Instructional Services Division of these questions.

Questions 1 and 2

What data do you collect and how do you use the data to help component schools increase their performance and student outcomes within your supervisory district? What specific data do you use? Where do you obtain the data? Are there any other data you wish you had?

Questar III’ Response

· Functioning as a resource and checkpoint to ensure accuracy of data and identify discrepancies in district reporting. This has become especially significant as a service to our districts as RIC’s have become involved in the LEAP process. It also allows us to compile the data of all the districts and measure improvement throughout the supervisory district.

· Foundation for district planning and for our own strategic planning activities.

Questar III also collects a subset of data through the Comprehensive System for Personnel Development (CSPD) which must be filed by each school district and reviewed by the SETRC Director. These data are identified from VESID’s Key Performance Indicators (KPI) and includes elementary test scores, numbers and types of diplomas awarded, incidents of drop out, classification rates, integration of special education students in general education classrooms and service in separate settings. These data are reviewed using an assessment of state standards worksheet helping to determine the gap between the school district performance and the assessment goals. It also guides the development of SETRC in-service programs for school district staff.

Other data in summary form is reviewed annually in the district report cards and the statewide profile of educational statistics published annually by the State Education Department.

The second category of data collected by Questar III is financial data. Because of