|
Audit Report |
Schuyler-Chemung-Tioga
Board of Cooperative
Educational Services
for the Period
July 1, 2001 through September 30, 2003
BOC-0703-1
June 3, 2004
The
University of the State of New York
THE STATE EDUCATION DEPARTMENT
Office of Audit Services
Albany, New York 12234
THE STATE EDUCATION DEPARTMENT
/ THE UNIVERSITY OF
THE STATE OF NEW YORK / ALBANY, NY 12234
Michael Abbott, CPA
Director
Office of Audit Services
Tel. (518) 473-4516
Fax (518) 473-0259
E-mail: www.mabbott@mail.nysed.gov
June 3, 2004
Mr. Robert Everett
Board President
Schuyler-Chemung-Tioga
BOCES
459
Philo Road
Elmira,
New York 14903
Dear Mr. Everett:
The following is our final audit report (BOC-0703-1) of the Schuyler-Chemung-Tioga Board of Cooperative Educational Services (BOCES) for the period July 1, 2001 through September 30, 2003. The audit was conducted pursuant to Sections 305 and 1950 of the Education Law in pursuit of Goal #5 of the Board of Regents/State Education Department Strategic Plan: “Resources under our care will be used or maintained in the public interest.”
Ninety days from the issuance of this report, BOCES officials will be asked to submit a report on actions taken as a result of this audit.
I appreciate the cooperation and courtesies extended to the staff during the audit.
Sincerely,
Michael Abbott, CPA
Enclosure
cc: Commissioner Mills, T. Savo, J. Kadamus, B. Porter, T. Sheldon, J. Canaday, J. Stevens,
C. Szuberla, C. Foster (DOB), W. Campbell (OSC), A. J. Micha, District Superintendent
Background and
Scope of the Audit
Schuyler-Chemung-Tioga Board of Cooperative
Educational Services (SCT BOCES) is headquartered in Elmira, New York
and serves seven component districts that have enrollments of more than 18,000
students. SCT BOCES had general fund
expenditures of $35.4 million and was ranked the 22nd largest BOCES in the
State, in terms of total general fund expenditures, for the 2001-02 school
year.
The objective of the audit was to assess the
adequacy of SCT BOCES' management controls which are designed to help ensure
its goals and objectives are accomplished; laws, regulations, and good business
practices are complied with; assets are safeguarded; and accurate and reliable
data are maintained. The audit focused
on management controls and reviewed practices, records, and documentation for
the period July 1, 2001 through September 30, 2003. This audit also followed up on findings and
recommendations from the previous New York State Education Department (Department)
audit of SCT BOCES.
Summary of Audit Results
The audit determined that SCT BOCES had many of the necessary controls in place; however, improvement opportunities exist in certain areas. A summary of our findings and recommendations follows:
·
SCT BOCES
should consider establishing an audit and finance committee to assist the Board
in meeting its fiduciary responsibilities (page 4).
·
Improvements
can be made related to budget administration, approval of attendance at
conferences, and completeness of budget status reports (pages 5-8).
·
SCT BOCES could
improve its EPE documentation and should ensure its annual financial reports
agree to the financial statements (pages 9-11).
·
Controls over
cash could be improved by use of pre-numbered, multicopy receipt forms and
restrictively endorsing checks upon receipt.
Improvements could also be made related to the treasurer’s report and
petty cash (pages 12-15).
·
Avoid paying
employees in advance of services being rendered and improve controls over
inventory records (pages 16-19).
·
Ensure the
extraclassroom activity funds are used only for authorized purposes (pages 20
and 21).
·
Adequate documentation was maintained to support the
data submitted to the Department for the BOCES Report Card and the Financial
and Statistical Outcomes of the Boards of Cooperative Educational Services
Report (Chapter 602 Report) (page 22).
·
Most of the
recommendations in our prior report were implemented (page 23).
Comments
of SCT BOCES Officials
SCT BOCES
officials generally agree with the findings and recommendations in this
report. Their response is included as
Appendix B to this report.
Table of Contents
Objectives, Scope,
and Methodology
Comments of SCT
BOCES Officials
Approval of
Attendance at Conferences
Comments of SCT
BOCES Officials
Comments of SCT
BOCES Officials
Comments of SCT
BOCES Officials
Payroll and
Personnel Practices
Comments of SCT
BOCES Officials
Accurate and
Complete Inventory Record
Comments of SCT
BOCES Officials
Comments of SCT
BOCES Officials
FOLLOW UP - RECOMMENDATION IMPLEMENTATION PLAN
Appendix A - Contributors to the Report
Appendix B – Schuyler-Chemung-Tioga BOCES Response
The mission of the Schuyler-Chemung-Tioga Board of Cooperative Educational Services (SCT BOCES) is to provide its component school districts, their students, and their communities with an effective and efficient educational program and support services that satisfy their current and projected needs and requests. SCT BOCES is headquartered in Elmira, New York and serves seven component districts that have enrollments of more than 18,000 students. SCT BOCES had general fund expenditures of $35.4 million and was ranked the 22nd largest BOCES in the State, in terms of total general fund expenditures, for the 2001-02 school year.
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 for students and adults, alternative education, adult basic education, special education, professional development, technology services, and school library services. Section 305 of the Education Law requires the New York State Education Department (Department) to perform fiscal audits of BOCES at least once every three years.
BOCES are required to collect and report various fiscal and performance data. The data are used to prepare the New York State BOCES Report Card (Report Card) and the Financial and Statistical Outcomes of the Boards of Cooperative Educational Services Report (Chapter 602 Report). The Report Card summarizes program accomplishments and services provided for children and adults. The Chapter 602 Report details certain financial and statistical data such as tuition costs for selected programs, per student cost information, and aggregate expenditure data.
The Report Card and Chapter 602 Report can be obtained from the following sources.
·
The Report Card
is available online at http://www.emsc.nysed.gov/repcrd2003/BOCES/highlights.pdf
·
The Chapter 602
Report is available online at
http://www.emsc.nysed.gov/mgtserv/602%20Report/AnnualReportTable.htm
The Office of Audit Services (OAS) reviewed selected management practices, records, and documentation for the period July 1, 2001 through September 30, 2003. The audit used a questionnaire to focus on eight key areas: governance and planning, accounting and reporting, revenue and cash management, purchasing and expenditures, BOCES reports and services, facilities and equipment, student services, and student-related data. The questionnaire contains information on key controls in each of the areas and includes the specific criteria or the standards used in assessing SCT BOCES’ operations. A copy of the questionnaire is available from OAS.
The objective of the audit was to assess the adequacy of SCT BOCES’ management controls which are designed to help ensure its:
· goals and objectives are accomplished;
· laws, regulations, and good business practices are complied with;
· assets are safeguarded; and
· accurate and reliable data are maintained.
To accomplish this objective, we reviewed applicable laws, regulations, policies and procedures; interviewed SCT BOCES management and staff using our questionnaire; examined records and supporting documentation; sampled a limited number of transactions on a non-statistical basis; and reviewed SCT BOCES’ audited financial statements.
Our audit included examining, on a test basis, evidence supporting transactions recorded in the accounting and operational records and applying other procedures considered necessary in the circumstances. The audit also assessed the estimates, judgments, and decisions made by management and determined the status of the implementation plan submitted for our prior audit report (BOC-0897-5). We believe that the audit provides a reasonable basis for our findings, conclusions, and recommendations.
The audit determined that SCT BOCES has many of the necessary controls in place; however, improvement opportunities exist in certain areas. A summary of our findings and conclusions follows.
·
SCT BOCES
should consider establishing an audit and finance committee to assist the Board
in meeting its fiduciary responsibilities.
·
Improvements
can be made related to budget administration, approval of attendance at
conferences, and completeness of budget status reports.
·
SCT BOCES could
improve its EPE documentation and should ensure its annual financial reports
agree to the financial statements.
·
Controls over
cash could be improved by use of pre-numbered multicopy receipt forms and
restrictively endorsing checks upon receipt.
Improvements could also be made related to the treasurer’s report and
petty cash.
·
Avoid paying
employees in advance of services being rendered and improve controls over
inventory records.
·
Ensure the
extraclassroom activity funds are used only for authorized purposes.
·
Adequate documentation was maintained to support the
data submitted to the Department for the BOCES Report Card and the Financial
and Statistical Outcomes of the Boards of Cooperative Educational Services
Report (Chapter 602 Report).
·
Most of the
recommendations in our prior report were implemented.
Improvement opportunities are addressed in more detail in the body of the report. SCT BOCES officials should consider the recommendations to further improve their operation and management.
SCT BOCES’ officials generally agree with the findings and recommendations in this report. Their response is included as Appendix B.
A BOCES’ board of education (board) is responsible for the provision of cost-effective programs and services and must provide for the governance and oversight of the BOCES’ affairs, personnel, and properties. The audit determined that SCT BOCES’ Board addressed many of its governance and planning responsibilities related to the control environment, compliance with legal requirements, fiscal oversight, staffing, and strategic planning. However, the Board could make improvements related to establishing an audit and finance committee, budget administration, approval of attendance at conferences, budget status reports, and Board minutes.
Many private and public sector entities have established audit and finance committees to assist their boards in matters involving financial reporting, internal controls, internal and external audit processes, compliance with laws and regulations, and a code of conduct. The organization and activities of an audit and finance committee can vary among entities and, therefore, the responsibilities should be enumerated in a charter. The committee can assist the board in meeting its fiduciary responsibilities and can help improve accountability. The Board could improve its fiscal oversight through an audit and finance committee.
The Board of Regents’ Statement on the Governance Role of a Trustee or Board Member gives several best practices for a governing board to follow. One of these best practices is for the board to establish an audit and finance committee. This committee should meet periodically with management and the independent auditor to consider the adequacy of internal controls and the financial reporting processes, and the reliability of fiscal reports. The committee should also assess the steps taken by management to address audit report findings and the steps to minimize risk to the BOCES. This could help ensure the integrity and credibility of the financial reporting systems and internal controls. The Board has not established an audit and finance committee.
A budget is a fiscal plan for the year and must be carefully developed and administered to ensure finances are adequately controlled. The Board has implemented many of the necessary controls related to budgeting including the use of a budget calendar, mass encumbering of known obligations, preparation of periodic reports, and fund balance projections. However, the Board could improve its budgeting related to authorizing expenditures and encumbering funds.
Section 1950.4(k) of the Education Law and Sections 170.1(f) and 170.2(k) of the Regulations of the Commissioner of Education (Regulations) specifically prohibit a board from authorizing or permitting expenditures to be made that exceed appropriations or available funds. BOCES should have procedures in place to prohibit incurring an expense or issuing a purchase order if it will result in overspending an account. SCT BOCES did not have such a procedure. SCT BOCES’ practice was to issue purchase orders even though it resulted in the account balances exceeding appropriations or available funds. SCT BOCES’ budget status report showed several budget account codes had negative balances.
Recommendation 2: Ensure that appropriations are available before expenditures or encumbrances are made, as required by Section 1950.4(k) of Education Law.
While SCT BOCES’ system has controls in place to prevent the encumbrance of accounts with insufficient balances, authorized staff can override this feature which allows SCT BOCES to continue to encumber or charge expenditures to budget account codes with an insufficient balance. The overspent account codes make monitoring the budget more difficult and increase the risk that the legally authorized amounts will be exceeded.
Blanket purchase orders or open-end accounts should be issued to vendors for purchasing items that are bought frequently from the same vendor and for purchasing items on an “as needed” basis. The purchasing agent and fiscal officer should determine the amount of the blanket purchase order, based on prior experience and expected needs, and then record the encumbrance on the accounting system. SCT BOCES did not use blanket purchase orders.
Recommendation 3: Use blanket purchase orders or encumber funds prior to using SCT BOCES credit cards for miscellaneous purchases.
The audit noted that SCT BOCES does not issue blanket purchase orders for groups of items that are purchased frequently from local vendors. Rather, SCT BOCES authorizes staff to use its credit cards for these purchases. While SCT BOCES has established controls over the use of the credit cards, it does not encumber the purchases at the time of the authorization. This can increase the risk that account codes may be overspent.
Section 77-b of the General Municipal Law (GML) and the Claims Section of the Office of the State Comptroller’s Financial Management Guide (Guide) specify the requirements and guidelines for the expenses of officials and staff attending conferences. The Guide states the board should promulgate rules and regulations concerning reimbursement of expenses. Specifically, they should set forth the types of expenses that are reimbursable, the procedures and documentation necessary to support reimbursement, and any reasonable dollar or time limits. SCT BOCES has policies for travel reimbursement; however, it could make improvements related to the approval process.
Recommendation 4: Establish procedures for prior approval of attendance at conventions, conferences, or schools.
GML permits the board to authorize any of its members, officers, or employees to attend a conference. The law also permits the board to delegate the power to authorize attendance at a conference to any executive officer or administrative board.
The Board minutes did not show any resolutions approving attendance at conventions, conferences, or schools, nor was there any mention of delegation of this authority. Without such prior approval, the Board has less assurance that the resources it dedicates for these purposes are being used efficiently and for the benefit of SCT BOCES.
A BOCES board needs accurate and timely budget status reports to monitor the financial condition and to ensure timely corrections to the budget plan. The budget status report provides an accounting of budget estimates compared to actual activity and can help ensure that the BOCES does not overspend its budget. SCT BOCES’ budget status report needs additional information to be more effective.
Recommendation 5: Include revenues in the budget status reports to the Board.
Education Law Section 1950 4 (j) and Section 170.2 (p) of the Regulations require the treasurer to prepare a budget status report at least quarterly (monthly if budget transfers have been made) for all funds. The format for the report is given in the Regulations and the Department has a sample format of the report available for use on its web site. The format shows both revenue and expenditures; however, SCT BOCES did not include revenue in its budget status reports to the Board. Without a complete and accurate budget status report, the Board is not able to effectively monitor the financial condition of SCT BOCES.
Board meetings are held to conduct official BOCES business including electing board officers, discussing and voting on educational and fiscal policies, and appointing officials. The minutes of board meetings are the legal and historical record of the actions of the board. As such, the minutes should be taken to accurately reflect the actions of the board during its meetings. The audit noted an improvement opportunity related to the minutes.
Recommendation 6: Include the results of the component districts’ resolutions, either approving or disapproving the tentative administrative budget, in the Board minutes.
The adoption of the board’s administrative budget is dependent upon a majority vote of the component districts approving the tentative administrative budget; otherwise, the board must prepare and adopt a contingency administrative budget. The audit found that the Board did not reflect the results of the voting in the minutes. However, SCT BOCES officials said they provided the component districts’ voting results to the Board verbally.
SCT BOCES officials concur with recommendations 1, 2, 4, 5, and 6. They disagree with recommendation 3 to use blanket purchase orders or encumber funds prior to using SCT BOCES credit cards for miscellaneous purchases. They stated that blanket or open purchase orders do not work for them, but credit cards enable them to make necessary and timely purchases and to pay for these purchases as soon as receipts are submitted.
Auditor’s Note
The audit believes SCT BOCES is not making use of an important budget control tool to prevent over expenditures of budget account codes. The audit has found that other BOCES use prior expenditure history to estimate the amount to encumber and then issue blanket purchase orders.
BOCES must have adequate accounting and reporting systems in place to ensure that accurate, timely, and complete financial records are maintained and disclosed in periodic reports to the board, the public, and the State. SCT BOCES has many of the necessary controls related to financial condition, financial accounting and reporting, auditing, and State aid and grants. However, SCT BOCES can make some improvements related to the documentation of Employment Preparation Education (EPE) expenditures and the accuracy of financial reports.
BOCES are eligible to receive aid for EPE programs that provide instruction that leads to a high school or equivalency diploma for students 21 years of age or older. The Department provides EPE aid based on the number of contact hours provided to eligible students and the aid is limited to the lesser of program expenditures or the amount calculated using reported contact hours. The aid must be spent on allowable expenses for EPE-related services. The total amount of EPE aid awarded cannot exceed total expenditures; therefore, documentation for both contact hours and expenditures is important.
SCT BOCES received about $203,000 in EPE aid for the 2002-03 school year. SCT BOCES generally had adequate systems and processes to claim, track, document, and report expenditures and contact hours properly. However, the audit found several improvement opportunities related to the allocation of expenditures and documentation to support reported contact hours.
Recommendation 7: Maintain adequate documentation to support the allocation of expenditures for the EPE program.
Section 168.4 of the 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.
Expenditures that benefit more than one program must be allocated to all programs that benefit from the expenditure. BOCES must use allocation methods that are fair and reasonable and can be documented for review. The allocation methods were generally adequate, but SCT BOCES could improve its documentation.
The audit found SCT BOCES did
not maintain documentation to support the allocation of the cost of operation
and maintenance expenditures and two computers. SCT BOCES was able to provide an adequate explanation for the
allocation of the costs. Nevertheless,
SCT BOCES should maintain documentation to support its allocations.
BOCES generate EPE aid by reporting contact hours and student enrollment to the Department. The Regulations define a contact hour for EPE as 60 minutes of instruction given by a teacher in approved program component areas. The Department requires the number of reported contact hours to be clearly documented to ensure that EPE revenues paid to the BOCES are appropriate. The audit found a few instances where the claimed contact hours did not agree with the supporting documentation.
Recommendation 8: Ensure the claimed contact hours are adequately supported by detailed documentation.
EPE revenue is based on the number of contact hours claimed and can never exceed total EPE expenditures. The reported contact hours must be accurate in order for SCT BOCES to receive the correct amount of aid that is due. However, the audit noted some exceptions, as follows:
·
SCT BOCES claimed $511 less in EPE aid on the SA-160s
than what is supported by summary documentation of contact hours.
·
SCT BOCES claimed two contact hours less than what is
supported by class rosters for the Adult Learning Center class (ALC3000).
·
SCT BOCES claimed 12 contact hours more than what is
supported by student logs for the External Diploma Program class (EDP4000).
As a result of these
exceptions, EPE aid was understated by $456.
SCT BOCES officials can submit an amended claim form if they wish.
BOCES are required to prepare and submit financial statements and other financial information such as the SA-111, The Annual Financial and Statistical Report of the Board of Cooperative Educational Services, to the Department. The SA-111 includes information such as assets and liabilities by fund and revenue and expenses by program or service. The SA-111 should be complete and should agree to the audited financial statements; however, the audit found some differences between the financial statements and the SA-111.
Recommendation 9: Ensure that the information on the SA-111 agrees with the audited financial statements.
The audit reviewed the information reported on the SA-111 and determined that the reported amounts for revenues, assets, liabilities, and fund balance for the Special Aid Fund did not agree with the audited financial statements. For example, the SA-111 showed $217,579 in total assets, while the financial statement showed $1,491,935. SCT BOCES’ independent auditor stated the differences may be due to journal entries that were reflected in the financial statements, but not on the SA-111.
SCT BOCES officials concur with recommendations 7 through 9.
BOCES collect and invest millions of dollars in revenue each year. They must have adequate controls in place to ensure the funds are collected and deposited, accounted for accurately, and safeguarded. The audit determined SCT BOCES generally complied with revenue and cash management requirements related to processing cash receipts and investments. However, SCT BOCES could make improvements related to cash collections, the treasurer’s report, and petty cash.
BOCES must establish strong internal controls over
cash collections to prevent mishandling and to safeguard against loss. Good business practices and sound internal
controls require the establishment of adequate separation of duties for cash
collections, authorization of individuals to collect cash, the use of pre-numbered
multiple copy receipt forms, a restrictive endorsement for all checks, and
establishment of a record of all funds received. The checks should be turned over to the business office for
deposit and someone independent of the record keeping function should verify
the funds were in fact deposited into the bank. SCT BOCES established many of the necessary controls over cash
collections, but it could make improvements related to the forms used to record
the receipt of cash and checks, the authorization of individuals to collect
money, restrictive endorsement on checks, and a list of checks received.
Recommendation
10: Use the required pre-numbered
receipt forms books to acknowledge receipt of funds.
Section 170.2 of the Regulations requires the BOCES’ treasurer to acknowledge receipt of all monies by issuing a pre-numbered receipt form as follows: original to the payer and the copy retained by the treasurer. This section also requires persons other than the treasurer, authorized by the board to receive money, to use a pre-numbered triplicate receipt form. Copies are distributed as follows: the original to the payer, a copy to the treasurer with the money or bank deposit receipt, and a copy retained by the individual authorized to receive money. Samples of these receipt forms are available on the Department’s web site.
The audit found SCT BOCES does not use the required duplicate and triplicate pre-numbered receipt forms. Rather, SCT BOCES uses a single copy receipt form that is not pre-numbered. Such a practice increases the risk that funds may be misappropriated and not properly accounted for. The use of this type of receipt form does not establish an adequate audit trail which would allow management to verify that all funds collected were, in fact, turned over to the treasurer and deposited. The audit also found that some individuals collecting money at various locations were not authorized to do so by the Board, as required by Section 170.2 of the Regulations.
Recommendation 11: Require the Board to give authorization to the individuals collecting money at various locations.
The Board’s approval of certain individuals to collect money would improve controls by letting employees know what is expected of them. It would also make the Board aware of the various collection sites and the reasons for collecting the money.
Restrictively endorsing checks upon receipt helps minimize the chance of misappropriation. Many BOCES use a rubber stamp to endorse checks “for deposit only” in the name of the BOCES. The audit found SCT BOCES does not restrictively endorse all checks upon receipt.