The New York State Audit Report called the Oyster Bay-East Norwich School District Internal Controls Over Financial Operations for the period of July 1, 2005 to Nov. 30, 2006, questions how encumbrances were put into the budget not using accepted accounting procedures.

The audit stated on page 5: "District officials have manipulated the recording of encumbrances to mask their financial condition. We identified 66 purchase orders, totaling $886,420, that were created and encumbered [set aside for use for a specific item] in February and March 2006, for which no actual commitments existed. This appears to have been an attempt to hide excessive fund balances. As a result, the district was precluded from using additional fund balance to reduce the subsequent year's tax levy."

Superintendent Dr. Phyllis Harrington answered the accusation in a letter to the state saying the district disputed the claims of "intent" and "manipulation." The district further agreed that tracking their purchase orders was "time consuming" for the auditors, but added that it was important, "Since it validated the appropriateness of the encumbrances. The examiners were patient with us and allowed us to offer the detailed records that tracked every one of the purchase orders..." The purchase orders showed that they were for equipment, materials and supplies for instructional programs.

The state's answer (note 3) was "requests for equipment, materials, and supplies from district administrators - when properly processed and executed - do eventually constitute valid purchase orders. However, since none of the vendor copies of the related purchase orders were sent to the vendors, the encumbrances did not constitute valid commitments for specific future expenditures."

While the district explained that they were involved with talking to administrators about the requests and finding good vendors, the state commented (note 4) that "Generally, purchase orders should be issued only after the bidding process is completed, the amount of the purchase is determined, and the appropriate vendor is identified."

The Office of the State Comptroller answered the district's response saying, "We do not state that district officials intended to mask the district's financial condition. However the practice of encumbering funds for purchase orders that do not represent valid commitments of district funds creates the appearance of manipulating the encumbrance system to hide excess fund balance that could be used to finance the next year's budget."

OBEN School Board President James Robinson said, "There is no missing money. Every penny is accounted for and the issue overall, as with any audit for a school or a company, is to use it as a tool to improve your operation. We have a slew of auditors and we take their recommendations and implement them.

"Based on this audit, the school board realizes that the encumbrances in question were not handled according to correct procedures. The bottom line is that all the money was spent toward the instructional programs as it was intended and to the benefit of the taxpayers. All the money is accounted for and what's at issue is the accusations of intent and manipulation. An audit should outline areas where you can improve your operations and it did and we did."

He said, "The only thing we are arguing is that the approval of the encumbrances were for legitimate expenses. We know by tracking all of the documents that the purchases that were ultimately made were exactly what they were originally intended for."

Mr. Robinson explained, "The encumbrances were made; the vendors that were changed were to ones we got better pricing from. For the computers, we were waiting for a state contract to be awarded so we could take advantage of better pricing."

Mr. Robinson said, "Read the audit. It is very important to read the entire report." He said the full report is available on the school's website: OBENschools.org and click on New York State Comptrollers Report of Examination. The public can download the report.

Mr. Robinson said at the end of the report, on Page 18, the auditor's report changes its position, reversing it. [The report has three sections, the audit, the school's response, and the auditor's reaction to the district's comments/answers.]

Mr. Robinson said, "The disappointment in all of this is the school district will not be in a situation of arguing [defending] about recommendations to improve our operations. What is reported in the document happened two and a half years ago - and changes have already been made - as well as changes suggested by our internal and external auditors.

"You have to use an audit to improve your operations. No one will say they disagree with the findings - they disagree with their accusations. No money is missing and all the money is accounted for. This report is not about that, it is about a business process. The purchases that were ultimately made were exactly for what the encumbrances were originally intended," he said.

The state auditors went on to state that they still questioned the way the district handled the $3 million of encumbrances that existed at June 30, 2006.

It should be noted that at board of education meetings during that time, Grace Searby stated many times over that the district had a fund balance of $3 million. At each meeting the board explained her claim away with valid explanations on the need for using the monies. The public then voted down the budget and the district went to a contingency budget. As

Oyster Bay resident Stan Speigelman [speaking for himself and not as an Oyster Bay Civic Association board member] said, "As a resident, I have been nothing but supportive of Dr. Harrington and the school budgets, and I think this is something that the board of education owes Grace Searby and apology. I understand no crime was committed and no one profited personally but the taxpayer suffered. There is a saying in business, 'That a shyster is someone who uses the letter of the law to subvert the spirit of the law.' This was a cheap trick. I've seen businesses do this. At the end of the year, to avoid paying taxes, they make purchases and cancel them the next year. It's not worthy of the board of educaton or the school administration. They owe a public apology and private apology to Grace Searby."

It should be noted that the audit report concludes its responses by saying, "We acknowledge that the encumbered amounts were ultimately used for proper district purposes. However, for proper budgeting and accountability for district spending, the district should ensure that an encumbrance is established only if a valid purchase order is issued. The actions taken by the district, as detailed in our report, had the effect of artificially reducing the amount of available fund balance that could have been used to help finance the subsequent fiscal year's budget."

As Mr. Robinson has said, the district recognized the need to change their procedures and have done so.