New York State Comptroller d Ivision of Local Government &

8/14/2019 New York State Comptroller d Ivision of Local Government &

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DIVISIONOF LOCAL GOVERNMENT

& SCHOOL ACCOUNTABILITY

O F F I C E O F T H E N E W YO R K ST A T E C O M P T R O L L E R

Report of ExaminationPeriod Covered:

July 1, 2007 January 6, 2009

2009M-154

Schenectady

City School District

Internal Controls OverSelected Financial Activities

Thomas P. DiNapoli


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11DIVISIONOF LOCAL GOVERNMENTAND SCHOOLACCOUNTABILITY

Page

AUTHORITY LETTER 2

EXECUTIVE SUMMARY 3

INTRODUCTION 5

Background 5

Objective 5Scope and Methodology 5

Comments of District Officials and Corrective Action 6

PAYROLL DISBURSEMENTS 7

Payroll Processing 7

Payroll Certification 10

Recommendations 11

CLAIMS AUDIT 12 Recommendation 13

INTERNAL AUDITOR 14

Recommendation 14

INFORMATION TECHNOLOGY 15

Recommendation 16

APPENDIX A Response From District Officials 17

APPENDIX B OSC Comments on the Districts Response 22

APPENDIX C Audit Methodology and Standards 25

APPENDIX D How to Obtain Additional Copies of the Report 27

APPENDIX E Local Regional Office Listing 28

Table of Contents


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Office of the State ComptrollerState of New York

EXECUTIVE SUMMARY

The Schenectady City School District (District) is governed by the Board of Education (Board) which

comprises seven elected members. The Board is responsible for the general management and control

of the Districts financial and educational affairs. The Superintendent of Schools (Superintendent) is

the chief executive officer of the District and is responsible, along with other administrative staff, for

the day-to-day management of the District under the direction of the Board.

There are 15 elementary schools, an early childhood education center, three middle schools, one highschool, a career center, and an adult education center in operation within the District, with approximately

10,400 students and 1,700 employees. The Districts operating expenditures for the 2007-08 fiscal year

were $139.3 million, which were funded primarily with State and Federal aid, and real property taxes.

Scope and Objective

The objective of our audit was to examine the Districts internal controls over selected financial

activities for the period July 1, 2007 to January 6, 2009. Our audit addressed the following related

questions:

Have District officials established adequate internal controls over payroll disbursements and

are those controls operating effectively to safeguard District assets?

Have District officials established appropriate internal controls over the claims audit process

and are those controls operating effectively to safeguard District assets?

Have District officials appropriately established the internal audit function?

Have District officials appropriately designed the controls over the Districts information

technology (IT) system to protect District assets?

Audit Results

The Board and District administrators need to improve their oversight of District operations. As a

result of poor oversight, we found weaknesses in controls over the Districts payroll disbursements,

claims audit process, internal audit function, and information technology system.

The former Head Utility Worker received over $50,000 in overtime compensation for duties attributable

to facilities management and energy management during the 2007-08fiscal year. However, his approved


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4 OFFICEOFTHE NEW YORK STATE COMPTROLLER4

time sheets did not clearly state the overtime hours that were allocated to each responsibility, and

the District did not have additional supporting documentation detailing the duties that he performed

during these hours. Although the employees supervisor approved the time sheets, he could not verify

the specified hours claimed were actually worked. Approval of overtime payments without supporting

documentation or supervisory knowledge of hours worked could result in employees receiving

compensation they may not be entitled to.

Because District officials do not provide sufficient supervisory review of payroll transactions, employees

made clerical errors when calculating 12 of the payroll payments in our sample, which resulted in

incorrect payments totaling $2,373. We also found weaknesses in the Districts internal controls over

separation payments, resulting in questionable payments to employees totaling $26,026. In addition,

the Assistant Superintendent for Business did not certify 11 of the 14 final payroll reports that we

reviewed. These weaknesses can, and did, result in incorrect payments being made to employees.

We also found weaknesses in the Districts claims audit process. Our review of 50 claims, totaling

$1,082,675, disclosed that 26 of the claims tested, totaling $293,921, had one or more deficiencies. The

claims auditor approved these claims for payment, although the claims did not comply with District

purchasing procedures. As a result, the Board has limited assurance that the claims audit process isworking as intended and that all paid claims were proper and necessary District expenditures.

Education Law requires that each district has an internal auditor who will undertake annual risk

assessments of district operations. The Board appointed a certified public accounting firm to serve

as the Districts internal auditor on December 5, 2007, almost a year after the requirement went into

effect. The District received the internal auditors final risk assessment statements for the year ended

June 30, 2007 on February 11, 2009. While the internal auditor should have provided the District with

a risk assessment for the year ended June 30, 2008 by December 31, 2008, the internal auditor had not

yet started it at the end of our fieldwork in May 2009. The internal auditors failure to perform a timely

annual risk assessment leaves the Board with limited assurance that potential risks at the District are

identified and that appropriate internal controls are in place to address those risks.

District officials have not established formal policies or procedures to limit users access within the

financial software system. District officials do not sufficiently use audit logs or change reports to monitor

the system for inappropriate access or unauthorized changes to the financial software. In addition, we

found that employees had access rights to the financial software that were not required to perform their

job duties. These weaknesses increase the risk that inappropriate payments or unauthorized changes to

data could occur and not be detected in a timely manner.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their

comments, which appear in Appendix A, have been considered in preparing this report. District

officials generally disagreed with our findings and recommendations. Our comments concerning the

District officials response can be found in Appendix B.


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Background

Introduction

Objective

The Schenectady City School District (District) is located in the City

of Schenectady, Schenectady County. The District is governed by the

Board of Education (Board) which comprises seven elected members.

The Board is responsible for the general management and control ofthe Districts financial and educational affairs. The Superintendent of

Schools (Superintendent) is the chief executive officer of the District

and is responsible, along with other administrative staff, for the day-

to-day management of the District under the direction of the Board.

There are 15 elementary schools, an early childhood education center,

three middle schools, one high school, a career center, and an adult

education center in operation within the District, with approximately

10,400 students and 1,700 employees. The Districts operating

expenditures for the 2007-08 fiscal year were $139.3 million, which

were funded primarily with State and Federal aid, and real property

taxes.

The objective of our audit was to examine the Districts internal

controls over selected financial activities. Our audit addressed the

following related questions:

Have District officials established adequate internal controls

over payroll disbursements and are those controls operating

effectively to safeguard District assets?

Have District officials established appropriate internalcontrols over the claims audit process and are those controls

operating effectively to safeguard District assets?

Have District officials appropriately established the internal

audit function?

Have District officials appropriately designed the controls

over the Districts information technology (IT) system to

protect District assets?

We examined the Districts internal controls over payrolldisbursements, claims auditing, the internal audit function and

information technology for the period July 1, 2007 to January 6, 2009.

We conducted our audit in accordance with generally accepted

government auditing standards (GAGAS). More information on

such standards and the methodology used in performing this audit is

included in Appendix C of this report.

Scope andMethodology


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Comments of District

Officials and Corrective

Action

The results of our audit and recommendations have been discussed

with District officials and their comments, which appear in Appendix

A, have been considered in preparing this report. District officials

generally disagreed with our findings and recommendations. Our

comments concerning the District officials response can be found in

Appendix B.

The Board has the responsibility to initiate corrective action. Pursuant

to Section 35 of the General Municipal Law, Section 2116-a (3)(c)

of the Education Law, and Section 170.12 of the Regulations of the

Commissioner of Education, a written corrective action plan (CAP)

that addresses the findings and recommendations in this report

must be prepared and provided to our office within 90 days, with

a copy forwarded to the Commissioner of Education. To the extent

practicable, implementation of the CAP must begin by the end of

the next fiscal year. For more information on preparing and filing

your CAP, please refer to our brochure,Responding to an OSC Audit

Report, which you received with the draft audit report. The Boardshould make the CAP available for public review in the District

Clerks office.


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Payroll Disbursements

School districts establish the pay and benefits for professional

employees and support staff in the written employment contracts

and agreements they negotiate with employee bargaining units or

individual employees. Employment contracts, agreements, andpolicies should contain clear language to allow proper interpretation of

their terms and conditions. In addition, controls such as a supervisory

review of payroll transactions help to ensure that compensation is

paid in accordance with employment contracts and District policies.

District officials and administrators must ensure that appropriate

controls are established to prevent and detect errors or irregularities

in the Districts payroll and personnel procedures and practices.

Education Law requires the District to certify all payrolls to ensure

that all payments are proper and necessary.

The former Head Utility Worker received over $50,000 in overtime

compensation for duties attributable to facilities management and

energy management during the 2007-08 fiscal year. Although his

supervisor approved the overtime, he could not verify the specified

hours claimed were actually worked, and the District did not have

additional supporting documentation detailing the work performed.

Therefore, the District could not be assured that the overtime the

employee claimed was accurate and necessary. In addition, District

officials do not sufficiently review payroll transactions initiated by

the Human Resources Department or processed by the payroll clerks.

We found clerical errors in the calculation of 12 of the payments inour test sample, which resulted in incorrect payments totaling $2,373.

We also found weaknesses in the Districts internal controls over

separation payments, resulting in questionable payments to employees

totaling $26,026. Furthermore, the Assistant Superintendent for

Business (ASB) did not certify 11 of the 14 final payroll reports that

we examined. As a result of these weaknesses, the District cannot

be assured that all payroll disbursements were proper and necessary

District expenditures.

The primary objective for internal controls over payroll processing

is to ensure that employees are paid wages and salaries and providedbenefits to which they are entitled. Controls, such as supervisory

review of payroll transactions and certification of payrolls, help to

ensure that compensation is made in accordance with Board action,

employment contracts, and District policies. Employment contracts

and policies generally address matters such as hours to be worked,

rates of compensation, amount and type of leave time to be granted,

eligibility for health insurance and other fringe benefits, and post

employment benefits to be granted.

Payroll Processing


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Overtime While overtime pay can be an expected cost of doing

business for a school district, it is a cost that must be carefully

controlled. A critical control over payroll and overtime expenditures

is verification of overtime worked and subsequent approval of the

employees time sheet for payment. This helps ensure that the District

incurs only necessary overtime costs. Properly detailed logs of work

performed can further provide control of overtime costs and allow for

analysis of additional staffing needs or revision of work priorities and

scheduling.

The District paid the former Head Utility Worker $50,836 in overtime

during the 2007-08 fiscal year. This individuals time sheets indicated

that the overtime coverage was for overtime split between his duties

attributable to facilities management and energy management. Each

duty performed had separate and distinct responsibilities.

We reviewed the 26 time sheets that the former Head Utility Worker

submitted for the 2007-08 fiscal year and found that he recorded that

he worked at least 36 hours of overtime each two-week pay period.

The former Head Utility Workers supervisor, the ASB, initialed his

approval for all of the overtime hours documented on the time sheets.

However, the Head Utility Workers approved time sheets were the

only supporting documentation for the overtime that he claimed

to have worked, and did not adequately document the reasons for

overtime coverage. In fact, of the 26 time sheets reviewed, two did

not document the reason for overtime coverage at all, and 19 included

overtime hours worked that were consolidated into one number, but

were attributable to both duties. Therefore, District officials did not

have sufficient documentation of the overtime hours attributable toeach duty. The District did not have documentation to describe in

detail the work that he actually performed during these hours, such as

a detailed log of completed tasks or progress that was made on tasks

that were not yet completed. The ASB indicated that the former Head

Utility Worker was required to enter District buildings when District

officials were not present (e.g., nights, weekends); thus, the ASB was

unable to verify the specified hours claimed were actually worked.

Approval of overtime payments without supporting documentation

or supervisory knowledge of hours worked could result in employees

receiving compensation that they may not be entitled to.

Payroll Calculation Errors It is important that District officials

review payroll transactions to ensure that they are correct and

necessary District expenditures. District officials did not sufficiently

review payroll transactions that were initiated by the Human

Resources Department or processed by the payroll clerks to ensure

that all payments were correct and made in accordance with District

policies and employment contracts.


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We tested 54 payroll payments totaling $69,984 that the District

made to 25 employees that included overtime payments to eligible

employees to verify that they were accurate and properly approved.

We found 12 calculation errors in payroll and overtime payments

totaling $2,373. Errors in payroll and overtime payment calculations

occurred because employees used incorrect pay rates when calculating

these payments, and did not accurately calculate the number of hours

worked. For example, the District incorrectly paid a maintenance

employee his 2006-07 hourly overtime rate of pay for overtime

that he completed in the 2007-08 fiscal year, which resulted in an

underpayment of $328.

Absent an adequate review and approval of payrolls, calculation

errors were made and not detected or corrected. Therefore, employees

received incorrect compensation for services rendered.

Separation Payments A total of 58 employees received retirement

and/or separation payments during our audit period, totalingapproximately $1.4 million. We tested seven separation payments

for retiring employees, totaling $329,566, to determine if the

payments were properly supported, calculated, and authorized. Due

to complicated contract language and District officials failure to

sufficiently review the separation payment calculations prepared

by the Human Resources Administrator, we questioned payout

calculations for five of the seven payments, amounting to $23,408. In

addition, as part of our payroll disbursements testing, we questioned

$2,618 in separation payments made to another individual. Examples

of the problematic payments are below:

The District paid two administrators a total of $139,728 in

retirement benefits that consisted of a retirement incentive

and sick leave payments. Both administrators elected to defer

their retirement dates until the year following their first year

of eligibility. Their employment agreements stated that the

retirement incentive was a percentage of the employees base

salary payable in the first year of eligibility. However, District

officials incorrectly calculated the retirement incentive

payments based on total salary during the year of retirement

deferral, which included base salary, tax sheltered annuitycontributions, and credit hour stipends. Consequently, the

administrators were potentially overpaid a total of $10,605 in

retirement incentives.

The District paid an Assistant Superintendent a total of

$109,031 in retirement benefits that consisted of a retirement

incentive, vacation leave, and sick leave payments. Her

employment agreement stated that her retirement incentive


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would be a percentage of her base salary and that her vacation

and sick leave payments would be calculated using her

salary day rate. However, in addition to her base salary, her

employment agreement provided benefits including expense

reimbursement and tax sheltered annuity contributions.

Because of complicated contract language concerning how to

determine this individuals salary day rate and base salary for

retirement purposes, District officials may have incorrectly

calculated all of her retirement benefits using her base salary

plus the additional benefits, which resulted in a potential

overpayment totaling $7,697.

The absence of clear contract language regarding the determination

of an employees separation payments raises questions about the

legitimacy of the amount that the District paid to its employees.

Employment contracts, agreements, or policies containing provisions

that are not clearly articulated or that do not address all pertinent

aspects of employment can lead to uncertainty about the rights, duties,and responsibilities of all parties involved. Furthermore, the lack of a

process in place for reviewing separation payment calculations can,

and did, result in incorrect payments being made.

Education Law requires the District to certify all payrolls. A

certified payroll is one that has been examined and approved by

an administrator who determines that the persons included in the

payroll reports have performed their duties in accordance with the

terms of their employment. The administrator who certifies payroll

must be independent of the human resources and payroll processes. A

properly certified payroll helps to ensure that payments are accurateand justified.

The ASB certifies the payrolls; however, there is no District policy

or Board resolution designating him to do so. Furthermore, the ASB

is not independent of the payroll process because he has full access

rights to the financial management software system that is used

for payroll processing. The Districts payroll certification process

includes printing two payroll reports: a preliminary report prior to

printing the payroll checks and a final report containing a certification

page after the payroll checks are printed.

We examined 14 final payroll reports during our audit period to

determine whether the ASB had properly certified them. Although

the ASB initialed 13 of the 14 preliminary reports, he did not certify

11 of the 14 final payroll reports. For example, although a final

report was printed with a certification page for the pay period ending

November 21, 2008, totaling $3,562,967, the ASB did not certify the

payroll. In other instances, final reports were not even printed for the

Payroll Certification


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ASBs secondary review and proper certification. Failure to review

payroll reports prior to payroll checks being processed allows for

changes to be made that may not be detected or corrected. Without an

independent review and properly performed certification of payroll,

District officials cannot ensure that payroll payments are accurate and

justified.

1. The Board should investigate the discrepancies noted in this report

to determine whether the payments were appropriate, and recoup

any inappropriate amounts.

2. The District should require that employees properly document

overtime hours worked. Such documentation should include

detailed logs of the work performed during overtime hours.

3. District officials should provide adequate supervision to ensure

that payroll is processed accurately and that employees are paid

the wages and salaries which they are entitled to, as approved bythe Board.

4. The Board should ensure that collective bargaining agreements

and employment contracts that include provisions for separation

payouts are clearly written. District officials should make only

those payments that are authorized by such agreements.

5. District officials should ensure that separation payments are

calculated as intended by the District in compliance with collective

bargaining agreements and employment contracts. To help assure

this compliance, someone independent of the process shouldreview separation payment calculations prepared by the Human

Resources Administrator.

6. The Board should formally designate an administrator independent

of the payroll process to certify the payroll. The administrator or

his/her designee should certify each payroll by attesting that the

persons included in the payroll have regularly performed their

duties in accordance with the terms of their employment.

Recommendations


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Claims Audit

Education Law requires that each claim against the District be

audited prior to payment to ensure that all payments are proper and

legal. The Board is responsible for auditing the Districts claims or,

alternatively, may appoint a claims auditor to assume the Boardspowers and duties of auditing and approving or denying all claims for

payment. A proper claims audit is intended to ensure that each charge

is properly authorized, accurately calculated, adequately supported,

in conformance with District policy, and a valid District expense.

Employees must attach supporting documentation to each claim that

includes evidence that the District received the goods or services and

that employees followed District policy when procuring the goods or

services. The claims auditor is responsible for certifying a list of all

approved claims (warrant) and for communicating the claims audit

results to the Board.

The Board appointed a claims auditor to assume its claims auditing

duties. We examined 50 claims that the District paid during the audit

period, totaling $1,082,675, to determine whether they were properly

authorized, made in accordance with District policy, adequately

supported, and showed evidence of receipt of goods and services.

Twenty-six of the 50 claims, totaling $293,921, had one or more

deficiencies. Nineteen of these claims totaling $272,175 did not have

verbal or written quotes attached1 and therefore did not comply with

the Districts purchasing procedures. The claims auditor approved

these claims for payment, although the claims did not contain evidence

that employees had obtained the quotes in accordance with District

purchasing procedures. The remaining seven claims totaling $21,746

lacked supporting documentation. They either did not have purchase

receipts attached, did not contain sufficient itemization such as lists

of attendees who received District-paid meals and refreshments, and/

or did not have prior approvals attached, such as a District-issued

purchase order or authorization to attend a conference.

When District officials and employees do not adhere to the Districts

purchasing procedures and purchase goods and services without

the benefi

t of obtaining quotes, they cannot be sure that they haveacquired goods and services in the most economical manner and in

the best interest of District taxpayers. Failure of the claims auditor to

perform a proper audit could result in the inappropriate payment of

claims.

____________________1 The Districts Purchasing Procedures require a written request for quotation

from at least three vendors for purchases between $5,000 and $10,000 and a verbal

quotation from at least three vendors for purchases between $2,500 and $5,000.


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7. The Board should ensure that the claims auditor conducts a

proper audit of claims in accordance with District policies and

procedures. The claims audit should include verification that

District personnel complied with the Districts purchasing policy

and procedures.

Recommendation


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Internal Auditor

By law, school districts must have had an internal audit function

in operation no later than December 31, 2006. The internal audit

function must include, at a minimum, the development of a risk

assessment of district operations. The risk assessment should includea review offinancial policies, procedures and practices; an annual

review and update of such risk assessment; and annual testing and

evaluation of one or more areas of the districts internal controls. The

internal auditor is also required to prepare reports (at least annually

or more frequently as the Board may direct) that analyze significant

risk assessment findings, recommend changes for strengthening

controls and reducing identified risks, and specify timeframes for

implementation of such recommendations.

The Board appointed a certifi

ed public accountingfi

rm to serve as theDistricts internal auditor on December 5, 2007, almost a year after the

requirement went into effect. Due to claimed scheduling conflicts, the

internal auditor did not present the draft risk assessment to the audit

committee until the Fall of 2008. Furthermore, the District received

the final risk assessment report for the year ended June 30, 2007 on

February 11, 2009. While the internal auditor should have provided

the District with a risk assessment for the year ended June 30, 2008

by December 31, 2008, the internal auditor had not yet started it at

the end of our fieldwork in May 2009.

The internal auditors failure to perform a timely annual riskassessment leaves the Board with limited assurance that potential

risks are identified and that appropriate internal controls are in place

to address those risks.

8. The Board should ensure that the internal auditor performs risk

assessments in a timely manner and on an annual basis as required

by the law.

Recommendation


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Information Technology

The use of information technology affects the fundamental manner

in which the District processes, records, and reports financial

transactions. The Districts widespread use of information

technology presents a number of internal control risks that mustbe addressed, such as misuse or loss of data from unauthorized

access. District policies and procedures that limit user access to only

authorized persons protect the data from intentional or unintentional

manipulation. Furthermore, software access controls must restrict

user access to only those functions needed by staff to perform their

job duties and to prevent these users from being involved in multiple

aspects offinancial transactions. In this way, software access controls

help to preserve proper segregation of duties. District officials can

implement compensating controls, such as reviewing edit/change

reports (audit logs), to help offset control weaknesses resulting fromthe failure to properly restrict user access.

The District uses a financial accounting software package (financial

software) to process and maintain financial transactions. The financial

software can be programmed to restrict users access to transactions

within the scope of their responsibilities. District officials have not

established formal policies or procedures to limit users access within

the financial software system. Although the Assistant Superintendent

for Business (ASB) uses audit logs to monitor productivity, he

stated that he does not use audit logs or change reports to monitor

for inappropriate access or unauthorized changes to the financialsoftware.

In addition, we found that the ASB and the Deputy Treasurer have full

access rights to the financial software, including full administrative

rights to modify user access. We also found that a payroll clerk

has access rights to add, update, and delete journal entries, process

payroll, and also print, void, and re-issue computer checks. With

these capabilities, these individuals have the opportunity to initiate

and conceal inappropriate financial transactions without detection.

Due to these control weaknesses, we generated and reviewed eight

audit logs for cash disbursements to determine if employees with

incompatible duties inappropriately used their access rights to make

changes to these modules. Although we found no instances of misuse,

the failure to establish and monitor policies and procedures relating

to financial data user access, restrict user access to the financial

software, and review corresponding audit logs increases the risk that


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inappropriate payments or unauthorized changes to data could occur

and not be detected in a timely manner.

9. District officials should adopt and monitor comprehensive policies

and procedures that address user access rights to the financial

software system. The Board should designate a responsible person

to carry out these policies and procedures, and restrict user access

based on users job duties. If this is not feasible, District officials

should implement compensating controls, such as reviewing audit

logs.

Recommendation


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APPENDIX A

RESPONSE FROM DISTRICT OFFICIALS

The District officials response to this audit can be found on the following pages.

The page numbers included in the response letter refer to the "draft" audit report distributed earlier

to District officials. The final audit report has been reformatted. Therefore, the page references in the

response letter are no longer accurate.


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SeeNote 1Page 22

SeeNote 2Page 2


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SeeNoPag

SeeNotPag

SeeNoPag

SeeNoPag


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SeeNote 7Page 23


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SeeNoPag

SeeNo

Pag

SeeNo

Pag


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APPENDIX B

OSC COMMENTS ON THE DISTRICTS RESPONSE

Note 1

During our review of payroll processing, District staff and officials provided no information indicating

that payroll transactions were reviewed by Business Office supervisory staff. Our review of District

payroll transactions also did not provide any evidence that the transactions were reviewed. In addition,

during our exit conference District officials did not provide any evidence that supervisory level staff

in the Business Office reviewed the payroll documentation prepared by the Human Resources Office

prior to payroll clerical staff processing the information.

Note 2

It is important that District officials review payroll transactions to ensure that they are correct and

necessary District expenditures. Our report does not conclude that District officials should personallyreview each of the thousands of payroll checks issued each biweekly pay period. Rather, in light of

the payroll processing deficiencies cited in this report (e.g., calculation errors, questionable separation

payments), we recommend that District officials provide adequate supervision to ensure that payrolls

are processed accurately and that employees are paid the wages and salaries to which they are entitled,

as approved by the Board. Because District officials did not perform an adequate review and approval of

payrolls, calculation errors were made and not detected or corrected, resulting in employees receiving

incorrect compensation for services rendered.

Note 3

The District has no assurance that the employee did perform duties for which overtime payments weremade. The only indication that the employee performed overtime duties was the number of overtime

hours he recorded on his time sheets, initialed by the Assistant Superintendent for Business (ASB).

Further, the ASB indicated that the employee was required to enter District buildings when District

officials were not present (e.g., nights, weekends); thus, the ASB was unable to verify the specified hours

claimed were actually worked. Approval of overtime payments without supporting documentation or

supervisory knowledge of hours worked could result in employees receiving compensation that they

may not be entitled to.

Note 4

This statement is incorrect. We tested 54 payroll payments totaling $69,984 that the District made to 25

employees that included overtime payments to eligible employees to verify that they were accurate and

properly approved. We found 12 calculation errors in payroll and overtime payments. The District paid

the former Head Utility Worker $50,836 in overtime during the 2007-08 fiscal year. Due to calculation

errors found during our initial payroll testing, coupled with the significant amount of overtime paid to

this one employee, we performed further review.


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Note 5

Audit staff held discussions with numerous District officials and staff, including the Human Resources

Administrator, ASB, Deputy Treasurer, Senior Payroll Audit Clerk and Payroll Clerk regarding the

Districts payroll process, supporting documentation and payroll payments made. Audit staff also had

discussions with these individuals to gain an understanding of the Districts collective bargaining

agreements, memorandums of agreement, and employment contracts, when warranted.

Our findings were based on a sample of transactions, not the entire population. Given the significant

error rate that we found, the actual level of inaccurate payments in the Districts payroll will be much

higher than $2,373. The fact that we found so many errors in the payments that we tested indicates an

internal control weakness that should be addressed by District officials.

Note 6

Except where contract language explicitly stated that the retirement incentive was a percentage of

the employees base salary payable in the first year of eligibility, and the District instead calculated

the retirement incentive payment based on total salary during the year of retirement deferral, ourreport did not conclude that the District incorrectly calculated separation payments that resulted in

overpayments, since the contracts are unclear and complicated. Rather, our report questioned payments

that were made and recommended that District officials ensure that separation payments are calculated

as intended by the District in compliance with collective bargaining agreements and employment

contracts. To help ensure this compliance, the School Attorney, in conjunction with the ASB, should

review separation payment calculations prepared by the Human Resources Administrator.

Note 7

Nowhere in this report do we counsel the District to renege on contracts, violate collective bargaining

agreements, or abridge the Taylor Law. Our report simply points out that contract language is unclearand complicated regarding separation payments, which raises questions as to the legitimacy of

separation payments.

Note 8

Effective internal controls provide for a payroll certification control by requiring a periodic sign-off

by a management level employee independent of the payroll operation. This procedure should ensure

that all payments are made to bona fide employees and reflect the proper pay rate. Minimally, the

administrator who certifies the payroll should sign-off on the final bi-weekly payroll and employ a

sampling process for a more in-depth review. This control is essential, particularly in light of thepayroll processing deficiencies cited in this report resulting from an insufficient review of payroll

transactions. Our report states that the ASB did not certify 11 of the 14 final payroll reports.

Note 9

During the audit, audit staff made specific requests to District officials for additional documentation

when items were not attached to a claim. At the exit discussion, District officials did not request this

information. We will provide this information to District officials under separate letter.


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Note 10

The Senior Payroll Audit Clerk is the official Civil Service title for the payroll clerk. However, the

Senior Payroll Audit Clerk has access rights to add, update, and delete journal entries, process payroll,

and also print, void, and re-issue computer checks, thereby resulting in an inadequate separation of

duties. Further, the Senior Payroll Audit Clerks access is not restricted to only those functions needed

by her to perform her job duties. Absent restricted user access, employees have the opportunity to

initiate and conceal inappropriate financial transactions without detection. Software access controls

must restrict user access to only those functions needed by staff to perform their job duties and to

prevent these users from being involved in multiple aspects offinancial transactions. In this way,

software access controls help to preserve proper segregation of duties.

District officials can implement compensating controls, such as reviewing change reports/audit logs,

to help offset control weaknesses resulting from the failure to properly restrict user access. Although

the ASB uses audit logs to monitor productivity, the ASB stated that he does not use audit logs or

change reports to monitor for inappropriate access or unauthorized changes to the financial software.

There is an audit trail recorded within the Districts financial software application that captures who

is entering transactions with a date and time stamp. It provides details on the point of entry (e.g.,workstation identification). Reports can be generated from this audit trail. The ASB does not generate

exception and change reports and stated that these reports would be too cumbersome to generate due

to the system not being fast enough.


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APPENDIX C

AUDIT METHODOLOGY AND STANDARDS

Our overall goal was to assess the adequacy of the internal controls put in place by officials to safeguard

District assets. To accomplish this, we performed an initial assessment of the internal controls so

that we could design our audit to focus on those areas most at risk. Our initial assessment includedevaluations of the following areas: financial oversight, cash receipts and disbursements, purchasing,

payroll and personal services, and information technology.

During the initial assessment, we interviewed appropriate District officials, performed limited tests

of transactions, and reviewed pertinent documents, such as District policies and procedures manuals,

Board minutes, and financial records and reports. In addition, we obtained information directly from

the computerized financial databases and then analyzed it electronically using computer-assisted

techniques. This approach provided us with additional information about the Districts financial

transactions as recorded in its databases. Further, we reviewed the Districts internal controls and

procedures over the computerized financial databases to help ensure that the information produced by

such systems was reliable.

After reviewing the information gathered during our initial assessment, we determined where

weaknesses existed, and evaluated those weaknesses for the risk of potential fraud, theft and/

or professional misconduct. We then decided on the reported objective and scope by selecting for

audit those areas most at risk. We selected payroll disbursements, claims audit process, internal audit

function, and information technology for further audit testing.

To determine if the Board and District officials had properly designed and implemented internal

controls over the selected audit areas, we inquired and observed District staff and examined the

following records and reports for the period July 1, 2007 through January 6, 2009:

We reviewed minutes from the proceedings of Board and Audit Committee meetings and

selected supporting documentation.

We reviewed pertinent District policies and procedures.

We reviewed employee personnel files, collective bargaining agreements, and individual

employment contracts.

We reviewed supporting documentation for payroll payments including payroll journals and

reports, time sheets, payroll payment requests, canceled payroll checks, and separation paymentcalculations.

We reviewed selected claims packets, corresponding warrants, and canceled accounts payable

checks.

We reviewed documents pertaining to the internal auditor including the completed risk

assessment, a risk assessment process document prepared by the CPA firm, and Board

resolutions.


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We reviewed user-access permission rights reports and audit logs generated from the financial

accounting software package.

We conducted our performance audit in accordance with generally accepted government auditing

standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient,

appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit

objective. We believe that the evidence obtained provides a reasonable basis for our findings and

conclusions based on our audit objective.


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APPENDIX D

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

To obtain copies of this report, write or visit our web page:

Office of the State Comptroller

Public Information Office

110 State Street, 15th Floor

Albany, New York 12236

(518) 474-4015

http://www.osc.state.ny.us/localgov/


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BUFFALO REGIONAL OFFICE

Robert Meller, Chief Examiner


295 Main Street, Suite 1032

Buffalo, New York 14203-2510

(716) 847-3647 Fax (716) 847-3643

Email: [email protected]

Serving: Allegany, Cattaraugus, Chautauqua, Erie,

Genesee, Niagara, Orleans, Wyoming counties

ROCHESTER REGIONAL OFFICE

Edward V. Grant, Jr., Chief Examiner


The Powers Building

16 West Main Street Suite 522

Rochester, New York 14614-1608

(585) 454-2460 Fax (585) 454-3545


Serving: Cayuga, Chemung, Livingston, Monroe,

Ontario, Schuyler, Seneca, Steuben, Wayne, Yates

counties

SYRACUSE REGIONAL OFFICE

Eugene A. Camp, Chief Examiner


State Office Building, Room 409

333 E. Washington Street

Syracuse, New York 13202-1428

(315) 428-4192 Fax (315) 426-2119


Serving: Herkimer, Jefferson, Lewis, Madison,

Oneida, Onondaga, Oswego, St. Lawrence counties

BINGHAMTON REGIONAL OFFICE

Patrick Carbone, Chief Examiner

Office of the State ComptrollerState Office Building, Room 1702

44 Hawley Street

Binghamton, New York 13901-4417

(607) 721-8306 Fax (607) 721-8313


Serving: Broome, Chenango, Cortland, Delaware,

Otsego, Schoharie, Sullivan, Tioga, Tompkins

counties

GLENS FALLS REGIONAL OFFICE

Karl Smoczynski, Chief Examiner


One Broad Street Plaza

Glens Falls, New York 12801-4396

(518) 793-0057 Fax (518) 793-5797


Serving: Clinton, Essex, Franklin, Fulton, Hamilton,

Montgomery, Rensselaer, Saratoga, Warren, Washington

counties

ALBANY REGIONAL OFFICE

Kenneth Madej, Chief Examiner


22 Computer Drive West

Albany, New York 12205-1695

(518) 438-0093 Fax (518) 438-0367


Serving: Albany, Columbia, Dutchess, Greene,

Schenectady, Ulster counties

HAUPPAUGE REGIONAL OFFICE

Jeffrey P. Leonard, Chief Examiner


NYS Office Building, Room 3A10

Veterans Memorial Highway

Hauppauge, New York 11788-5533

(631) 952-6534 Fax (631) 952-6530


Serving: Nassau, Suffolk counties

NEWBURGH REGIONAL OFFICE

Christopher Ellis, Chief Examiner

Office of the State Comptroller33 Airport Center Drive, Suite 103

New Windsor, New York 12553-4725

(845) 567-0858 Fax (845) 567-0080


Serving: Orange, Putnam, Rockland, Westchester

counties

APPENDIX E

OFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENT

AND SCHOOL ACCOUNTABILITY

Steven J. Hancox, Deputy Comptroller

John C. Traylor, Assistant Comptroller

LOCAL REGIONAL OFFICE LISTING

Documents

New York State Comptroller d Ivision of Local Government &