Executive Summary – Audit Results

This report contains the results of an audit of the District Superintendent's Conference Account (DSCA). The audit stemmed from the audit of the Washington-Saratoga-Warren-Hamilton-Essex (WSWHE) BOCES, whose District Superintendent was the custodian for all funds contained in the DSCA. The DSCA was originally intended to finance the cost of the monthly meeting of the District Superintendents. The audit disclosed that expenditures were made for items that did not relate to meeting expenses. It also found that improvements are needed with overall internal controls involving supporting documentation and authorization for payments.

The DSCA is funded by annual assessments on each of the 38 BOCES. The assessment was $400 and $600 for the 1995-96 and 1996-97 school years, respectively. The audit disclosed that improper costs were charged to the account and inadequate documentation was maintained. Presented below are examples of the types of expenditures made that are contrary to the proper use of public funds.

· Plaques and crystalware (crystal apple) were purchased for District Superintendents and former District Superintendents ($4,406).

· Lodging expenses of a former District Superintendent to attend a conference/meeting ($316).

· Flowers for a Department employee ($50), a crystal gift for a Department employee ($72), and crystal vases with silk flowers for spouses of current or former District Superintendents ($333).

· Charitable contributions ($250).

· Alcoholic beverages ($1,082), and a

· Retirement reception ($412).

Expenditures of this nature are usually financed by donations from personal funds so as not to give the appearance that public funds are being used for personal purposes. The DSCA also included the reimbursement of expenses for conferences/meetings, which were not covered by State travel rates ($690). The following chart illustrates these expenditures by category.

The report recommends the exploration of alternative methods for financing District Superintendents’ meetings and the discontinued use of public funds for non-public purposes.

Introduction

Background

The audit of the Washington-Saratoga-Warren-Hamiliton-Essex (WSWHE) BOCES included reviewing expenditures of an account referred to as the District Superintendent's Conference Account (DSCA). The current DSCA has existed for over 10 years and has provided the financial mechanism to conduct periodic District Superintendents’ business meetings. The audit determined, through conversations with Department personnel, that the DSCA was originally established in the early 1970s as a means to pay the expenses of the District Superintendents monthly and periodic business meetings. These meetings have been held over the past three years in places such as the Otesaga Hotel in Cooperstown, the Century Inn in Latham and State facilities in Albany. The account resides with the District Superintendent of WSWHE BOCES. He maintains the records for the account, and is the sole signatory on the checking account.

Objectives, Scope and Methodology

Pursuant to Sections 305 and 1950 of the Education Law, we audited management practices, records and documentation related to the operation of the DSCA for the period July 1, 1994 through June 30 1997. This was a financial related audit and the objectives were to:

· verify that only reasonable and necessary costs were incurred:

· verify that the budgetary or assessment process provides control over the expenditure of funds: and

· ensure compliance with all applicable laws, policies and guidelines.

To accomplish our objectives, we reviewed applicable laws, regulations, policies and procedures; interviewed Department and WSWHE BOCES management and staff; and examined records and supporting documentation.

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 transactions recorded in the accounting and operational records and applying other audit procedures considered necessary in the circumstances. An audit also includes assessing the estimates, judgements and decisions made by management. We believe that the audit provides a reasonable basis for our findings, conclusions and recommendations.

Comments for Department Officials

Department officials generally agree with the findings and recommendations contained in this report. Their response is included as Appendix B to this report.

District Superintendent Conference Account

The Washington-Saratoga-Warren-Hamiliton-Essex (WSWHE) BOCES, under the direction of the District Superintendent, operated a checking account referred to as the District Superintendent's Conference Account (DSCA). This account was used to pay meeting expenses, charitable expenses, alcoholic beverages, gifts, and expenses for Department employees to attend conferences/meetings that exceeded the State’s reimbursement. The current DSCA has existed for over 10 years and has provided the financial mechanism to conduct District Superintendents’ meetings periodically. These meetings have been held over the past three years in places such as the Otesaga in Cooperstown, the Century Inn in Latham and State facilities in Albany. The audit determined through conversations with Department personnel that the DSCA was originally established in the early 1970s as a means to pay the expenses of the District Superintendents’ monthly and periodic business meetings.

Revenues for DSCA are generated by assessments sent to each of the BOCES. In the 1995-96 school year the assessment was $400, and in 1996-97 it was $600. The records maintained by the District Superintendent include an expenditure and revenue ledger as well as monthly bank statements. Based on our limited review of the records, the audit concluded documentation of expenditures is inadequately maintained. The audit was not able to determine the nature or purpose of an expenditure in many cases.

The following table shows the expenditures for the 1994-95 through 1996-97 school years.

District Superintendent’s Conference Account

Table of Expenditures

School Year	Meetings	Gifts	Consultants	Alcoholic Beverages	Department Employee Reimbursement
1994-95	$7,964	$3,760	$0	$0	$184
1995-96	13,148	113	113	951	504
1996-97	726	533	2350	132	0
Total	$21,838	$4,406	$2,463	$1,083	$688

Lack of Adequate Internal Controls

The audit determined that the documentation for the expenditures of the account needs improvement and internal controls should be strengthened. The District Superintendent was the sole signatory on the account. Although the account was opened with the WSWHE BOCES identification number, the account was not included in the financial records of the WSWHE BOCES and, therefore was not part of the annual independent audit process.

An essential component of internal controls is the concept of separation of duties, which means that no one individual should have complete control over an account. The process for disbursing funds from the account did not follow the regular procedure of other WSWHE BOCES accounts. The invoices or bills were not reviewed by business office accounting clerks or approved by the board, and were not reviewed by the internal auditor. As sole signatory, the District Superintendent both wrote and approved the checks.

Several checks were made payable to the District Superintendent for reimbursement of items purchased with his personal credit card for the DSCA. The documentation provided for several of the items purchased accounted for the expenditure but did not explain the purpose or intent of the item. Ledger accounts maintained at the time did explain the purpose of the expenditure.

Personal Items Purchased

The audit determined that personal items were purchased with public funds through the DSCA, in violation of Article 8 of the State Constitution and the judicial decisions of the Commissioner of Education. The audit found that:

· over $4,400 was spent on plaques and crystalware (crystal apple) for District Superintendents and former District Superintendents,

· the DSCA spent $50 for flowers for a Department employee, $72 for a crystal gift to a Department employee, and $333 for crystal vases and silk flowers for District Superintendent spouses,

· the DSCA paid $400 for a retirement reception, and

· donations totaling $250 were made from the DSCA.

The Office of the State Comptroller’s Financial Management Guide states that expenditures for the purchase of alcoholic beverages are not considered a proper or necessary travel or meeting expense of BOCES. The audit also determined that the DSCA paid over $1,082 for alcoholic beverages at various meetings during the audit period.

Third Party Reimbursement of Expenses

Section 8 of the State Finance Law and Section 930.6 of State Ethics Law govern excess and third party reimbursement of State employee travel expenses. Section 8 states that State employees cannot be reimbursed more than the State per diem rate without the approval of the State Director of Employee Relations.

There is also a question raised with Section 930.6, which states that employees must request approval from the Department's Office of Access and Diversity. Section 930.6 (7)(i) states that third party reimbursement may not be made if the agency regulates or does business with the third party. Although the Section does not apply to governmental units, a Governor's Office of Employee Relations official believes that the spirit of the intent of this Section should be considered.

The audit found that six Department employees were reimbursed by the DSCA for expenses incurred in excess of the State per diem rate without approval from the State Director of Employee Relations. Reimbursement to one Department employee was approved by the Department’s Director of Human Resources. Four employees are no longer employed by the Department. The total amount reimbursed was $688.

Proper Vehicle for DSCA

The audit has determined that the current checking account arrangement may not be the best arrangement for the DSCA. District Superintendents and the Department should explore alternative ways to finance the monthly meetings. The account should be restricted to necessary and reasonable expenses associated with the business meetings of the District Superintendents.

Recommendation

1. Explore alternative methods of paying for District Superintendents’ business meetings. Such alternative methods should ensure that adequate control procedures are in place and that public funds are expended for the conduct of public business.

Auditor's Note

The recommendation has been accepted by the Chief Operating Officer. The District Superintendent Planning Committee has tentatively approved a proposal to establish a District Superintendent Business Account with the New York State Council of School Superintendents and has submitted it to the Department for approval.

Audit Report

The University of the State of New York