A forensic audit of the Mineola School District's Capital Account and Microband Account from the time period of 1999 through 2004 revealed that a system of checks and balances with regard to district purchasing was severely lacking. The firm that conducted the audit also deemed 10 to 15 vendors the district dealt with during that time to be "suspicious."
Callaghan & Nawrocki, the accounting firm that conducted the forensic audit of the two accounts, stated in its report that "there was a significant lack of control over the purchasing function" in the time period of 1999 through 2004, which the audit focused on.
Callaghan & Nawrocki, which is also the district's external auditor, also found that there were various vendors during that time that were suspicious based upon various criteria such as check endorsements, duplicate invoices, invoice amounts, lack of documentation, different vendor invoices with similar addresses and bids/quotes that do not appear to be authentic or not obtained.
At the Thursday, Oct. 5 Mineola Board of Education meeting, when the findings of the audit were presented by Ernest Patrick Smith of Callaghan & Nawrocki, a question was posed as to who the vendors were. However, the board is choosing to keep that information confidential because of possible legal action, although it was stated there were 10 to 15 vendors.
According to Smith, the audit concluded that many of the internal control procedures that are in place to ensure proper purchasing weren't followed. The forensic audit was part of the district's investigation following the indictment of former assistant superintendent of business and finance for the district John Jackson for grand larceny in spring 2005. The arrest and indictment eroded the public's trust in the school district as the district saw its budgets fail.
During the 2004-2005 State-of-the-District Report, Superintendent of Schools Dr. Larry Licopoli announced that the district would conduct an internal investigation. Part of that investigation included hiring Callaghan & Nawrocki to conduct a forensic audit of the district Microband Account and Capital Account. The audit focused on those accounts because they were not entered into the computerized financial planning system, but were rather manually kept.
Mineola School Board President Mary Ellen Williams said the board felt that in order to build public trust, it had to have someone outside the district look into the accounts and perform a forensic audit.
Among some of the significant findings by Callaghan & Nawrocki are:
In the Microband Account
• In reviewing payments from the Microband Account from July 2000 to June 2003, there were 11 purchase orders, which did not have the purchasing agent's approval. Therefore, according to the correct system of checks and balances, purchases were made without proper approval.
• There were 24 of 144 checks made from the Microband Account that did not have voucher packages including purchase orders or invoices.
• There were 28 purchase orders or invoices which did not have a receiving signature and were paid by the district.
• There were nine voucher packages that did not have an invoice.
• Of the 144 checks made by the district out of the Microband Account during that time period, 126 did not have addresses on them.
• There were 19 checks endorsed by a different vendor other than the vendor to whom the check was paid.
• There were five checks in which the purchasing agent signed both the purchase order as well as the check. Therefore, the same person both authorized the purchase and the payment.
• There were seven voucher packages, which had quotes that did not appear to be authentic. The quotes appeared to be typed up using different fonts and were not on official company letterhead. In essence, they were deemed to be suspicious since the quotes did not appear to be on official letterhead by the vendor.
• Using a threshold of $5,000, there were 24 disbursements, which did not have quotes.
• There were 10 purchases which should have been put out to bid and were not.
In the Capital Account
• In the Capital Account, there were 18 purchase orders which did not have approval of the purchasing agent.
• The purchasing agent approved 37 purchase orders and also signed the purchase order receiving reports.
• The purchasing agent approved 48 purchase orders and was also the person who requested the purchase.
• There were 46 voucher packages that did not have a purchase order.
• Out of 326 payments out of the Capital Account during the time period of the audit, there were 45 instances where there was no receiving signature verifying receipt of goods/services.
• There were 48 claim forms used instead of purchase orders.
• There were nine voucher packages, which did not have an invoice attached.
• There were seven purchase orders where the purchasing agent approved the purchase order (authorization) and also signed the check for disbursement of the expense.
• There were 262 checks that did not have an address on them.
• There were 11 checks for payment that did not agree with the invoices. These checks were either not paid in full or there were mathematical errors.
• Using a threshold of $5,000, there were 35 payments which did not have quotes.
• There were 77 purchases, which should have been put out to bid and were not.
During the course of the presentation of the audit, a member of the community questioned how much money in questionable payments there was but wasn't given an answer.
In addition, Callaghan & Nawrocki concluded that the Microband Account and Capital Account were not reviewed by the internal claims auditor in place for the time period of June 2000 through June 2005.
The district identified the purchase agent during the time of the audit as Jackson, who pled guilty in October 2005 to charges of bribe receiving and official misconduct for taking approximately $28,902 from the Mineola School District. According to Callaghan & Nawrocki, there was a lack of segregation of duties where the purchasing agent would also be signing the accounts payable checks.
The district identified the internal claims auditor for that period of time as Raymond Balian, who resigned from the district on July 8, 2005.
The findings of the forensic audit displayed a significant breakdown in the claims audit process. Dr. Licopoli offered no excuses as to why the proper internal control procedures weren't being followed.
However, the district did have external audits done during that time and, as board of education vice president John McGrath points out, were given a clean bill of health every year by the district former external auditor R.S. Abrams and Company.
In one of the audit reports, for example, dated August 6, 2002 to the Mineola Board of Education from R.S. Abrams and Company, in the "Summary of Auditors Results," there were no findings to be reported with regard to findings related to financial statements and no instances of noncompliance material to the financial statements of the district were disclosed during the audit.
"I asked our auditors [Callaghan & Nawrocki] specifically if there was any way R.S. Abrams shouldn't have been able to pick this [the improper system of checks and balances] up and they said no. It should have easily been picked up," McGrath said.
Dr. Licopoli points out that the forensic audit, which was recommended to the board of education and approved by the board, was done in an effort to right the ship. Dr. Licopoli believes changes have been implemented to correct poor, past accounting practices.
Callaghan & Nawrocki, the firm that conducted the forensic audit, began as the district's external auditor with its audit of the 2004-2005 budget and will be presenting its audit of the 2005-2006 budget shortly. The Microband Account and Capital Account are now maintained on the accounting computer systems, where, according to Callaghan & Nawrocki, there is more control over the purchasing and cash disbursement function. The district also has a different assistant superintendent for business and finance, an internal auditor, treasurer, assistant business administrator and internal claims auditor. Dr. Licopoli said he believes the team is in place to safeguard the public's money and also has confidence in Callaghan & Nawrocki to test to make sure that every regulation is being followed.
"You owe it to the public to give them the information they need to feel that the operation is worthy of trust," said Williams, who was named school board president in July.
McGrath, the board's vice president for this, the 2006-2007 school year, said the audit pointed out major flaws in the accountability system, but points out that all the auditing practices that were in existence, and were unable to pick up the problems, have been corrected.
"It's somewhat less than satisfying that we can't nail down whether funds were misappropriated but it looks as though that was not the case," he said. "If we can't document certain transactions, then it's hard to know whether or not there was an actual misappropriation, but from what the auditors told us, it doesn't look that way. It looks as though things were appropriated for school uses."
There may not be sufficient evidence that funds were misappropriated but with a lack of checks and balances, there is no certainty that there weren't. Then, there is the matter of the 10 to 15 vendors the audit firm identified as suspicious. McGrath said the board is looking into the vendors that were deemed by the audit firm to be suspicious and whether the district is still doing business with those vendors.