New York State Comptroller Thomas P. DiNapoli recently announced his office has completed an audit of the Island Trees Union Free School District.

The audit, which looked at Internal Controls Over Selected Financial Operations, covered July 1, 2005 through June 30, 2007. According to the comptroller's office, the audit's results and recommendations are resources for district officials to use in effectively managing operations and in meeting the expectations of their constituents.

"My office's audits of school districts, charter schools and BOCES help schools improve their financial management practices," DiNapoli said. "These audits are tools for schools to make sure proper policies and procedures are in place to protect taxpayer dollars and provide students with the best possible education."

"The auditors looked at many areas including purchasing, payroll, cash management, asset management, etc.," Superintendent James Parla told the Tribune. "There were no significant findings. The auditors reviewed wire transfers, bank deposits, etc. when looking at the segregation of duties issue and there were no exceptions. Everything was done right."

The report did not find any instances of fraud, however, it did address the following questions: "Did the district adequately segregate duties over its fiscal operations to reduce the risk of errors, fraud, and professional misconduct? Are internal controls over claims processing appropriately designed and operating effectively? Did the district solicit requests for proposals (RFPs) when procuring professional services?"

As the district's purchasing agent, the assistant superintendent [Salvatore Carambia] also is responsible for authorizing all purchases by approving purchase orders. He is also responsible for all Business Office operations, such as preparing deposit slips for checks that come in the mail, recording transactions in the accounting system, preparing journal entries and directing a clerk in his office to enter them in the accounting system, making cash adjustments, and reviewing monthly bank reconciliations prepared by a clerk in his office.

The 20 wire transfers, 38 receipts and deposits slips analyzed by auditors were found to have no inconsistencies. The audit stated that monies received were deposited intact and in a timely manner.

"As a result the district is vulnerable to the possibility of errors and/or improprieties occurring and not being detected," the audit continues. "The district gave virtually all control over its fiscal activities to the assistant superintendent for finance and administration without providing appropriate supervision over his work. The assistant superintendent oversees the business office and serves as the deputy treasurer and purchasing agent. Because all of these conflicting functions are performed by one person, and because district officials do not provide adequate review and oversight of his work, improper use of district funds could go undetected and uncorrected. The lack of segregation of duties in the Business Office puts the district at risk of fraud, abuse of taxpayer's funds, professional misconduct, and errors that may go undetected."

"In addition, the district's claims auditing process is not well designed or functioning properly," the audit states. "Finally, the district's procurement policy did not require the use of a request for proposals process to procure professional services. As a result, district officials rarely used RFPs to obtain competitive proposals for professional services and continued to use the same professionals year after year without any competition."

The district's procurement policy did not require the use of an RFP process to procure professional services.

"As a result, district officials rarely used RFPs to obtain competitive proposals for professional services and continued to use the same professionals year after year without any competition," the audit states.

The audit reviewed payments made to six professional service providers totaling $854,000 for the two fiscal years 2005/06 and 2006/07 and found that the district did not solicit RFPs when hiring four of the six providers for services totaling $449,497. Also, two of the four providers did not have a written contract or agreement with the district.

"These weaknesses increase the risk that the district is not paying the most reasonable cost for these services and that the amounts paid were not correct or for properly authorized services," the audit states.

The comptroller's office recommended that district officials should review the duties within the Business Office and institute internal controls to ensure proper segregation of duties.

"Where incompatible duties cannot be appropriately segregated, district officials should establish supervisory review procedures and other compensating controls to mitigate specific risks," the audit states.

As for claims processing, "the audit recommends that the board should ensure that the claims auditor audits all of the district's claims, the treasurer should ensure that all claims are audited and certified before initiating payment for claims, district officials should ensure that the accounts payable clerk retains all certification forms, the board should ensure that its claims auditing policy and the contract with the public accounting firm adequately define what constitutes a proper audit of claims and identify how the claims auditor must indicate that he or she has audited claims, the board and district officials should monitor and enforce compliance with district policies and regulations governing travel and conference expenses and the claims auditor should ensure that approved conference attendance request forms are attached to travel reimbursement claims prior to approving them for payment."

The audit also recommends the board should revise the district's procurement policy to require that the district award professional services contracts only after soliciting RFPs as well as have written contracts with all service providers.

On April 3, the Island Trees School District sent a letter to the comptroller's office, stating they were appreciative of the state auditors' assessments and recommendations. Superintendent Parla and Board of Education President Kenneth Rochon state in the response letter, "based on your initial assessment, you determined that adequate controls and limited risk existed in most financial areas reviewed."

They offered specific responses to the audit's findings and recommendations.

The letter states that due to the size of the school district, there is a relatively limited number of employees working the business office. The district stated it is in the process of hiring an employee to serve as a purchasing agent to improve the segregation of duties.

"The treasurer's role will also be modified to improve financial controls," the letter states.

"The assistant superintendent wore many hats," Superintendent Parla told the Tribune. "We are rectifying this by hiring a part-time purchasing agent and changing some of the treasurer's duties."

"The Island Trees Board of Education contracted an outside auditing firm to perform the claims audit function for the district," the letter states. "The firm audited and approved the claims twice a month both mid-month and at the end of the month. However, the mid-month certifications were not retained on file by the district."

The district agreed to continue to monitor that the mid-month warrant certification is maintained on file.

While the district's response letter states there is no legal requirement to issue an RFP for legal or architectural services, the state comptroller's office later noted that the district adopt policies and procedures governing the procurement of good and services when competitive bidding is not required.

"We believe that an RFP process is a good management practice that should be followed to help ensure that the district obtains needed services at a reasonable price," the state comptroller's audit states.

"The district had the same attorney and architect for many years and was satisfied with the service," Superintendent Parla later told the Tribune. "There is no legal requirement or policy requiring the issuance of an RFP for these services. However, for 2006-07, the district did issue an RFP for architect services and last year for 2007-08 an RFP was issued for legal services, since the board decided to change both."

For more information on the audit, visit http://www.osc.state.ny.us/press/releases/apr08/042908.htm.