The long-anticipated "report of examination" of the Roslyn School District's embezzlement scandal has been published. Entitled "Roslyn Union Free School District: Anatomy of a Scandal," the report, issued by the office of State Comptroller Alan Hevesi, covers the time period from Jan. 1, 1996 to June 14, 2004 in an effort to uncover the depth of the scandal and how it happened.
Here are more specifics from that report, including the lack of oversight, what needs to be done to restore financial integrity to the district and what the current Board of Education is already doing about it.
Much of the criticism has centered on the auditing practices of Miller, Lilly & Pearce, the firm that was hired to handle Roslyn's financial situation. In addition, the old school board was singled out by the report for its fiscal management of the district.
The old board's shortcomings, according to the report were its failure to have the Audit Committee report regularly to the board on financial matters, its failure to report wrongdoings by district members to the district attorney's office, and a similar failure by a former vice president of the board to immediately report funds embezzlements to other board members.
In addition, the old board, the report continued, gave former Superintendent Dr. Frank A. Tassone the authorization to approve budget transfers without placing a dollar limit on his authority. Moreover, the district's treasurer did not always provide the board with Budget Status Reports.
"If they [board members] had regularly reviewed Budget Status Reports, the treasurer and the board would have been alerted to instances when and where substantial over-expenditures were occurring," the report claimed. "Such a review might have hindered the apparent schemes to misappropriate district funds carried out by certain district administrators."
Also coming in for criticism was the district's Internal Claims Auditor, mainly for failures to review check warrants when approving claims and for never submitting reports to the board.
However, the report did praise current district officials for making "significant changes" in the way the Internal Claims Auditor does his job.
"An external CPA firm has been hired to perform this function for the district," the report noted. "The new Internal Claims Auditor audits the vouchers after the 'checks waiting to be printed' ('check warrant') report is printed; this report is signed by the Internal Claims Auditor directing the treasurer to pay the claims. After the checks are printed, the check warrant is printed. The Internal Claims Auditor then compares the check amount against the previous report that he's already approved."
As with the District's Internal Claims Auditor, the report criticized the former treasurer for not attending board meetings on a regular basis, for not signing the district's checks, for not maintaining a log of checks processed, and as noted, for not providing the board with Budget Status Reports.
The report also issued overall criticism of the district's lack of internal controls, which mostly had to do with purchasing and disbursements matters. Such criticism including not using check warrants, the practice of paying district checks directly to vendors without the use of purchase orders, a similar practice of mailing district checks to vendors prior to the Internal Claims Auditor reviewing and approving the claims, and the failure to both establish a travel policy and "develop procedures requiring a detailed itemization of claims for reimbursement that justified the connection of the expenses to the district's business."
A good portion of the allegedly embezzled funds were used by district personnel to take numerous trips over the years to various destinations around the globe, including trips, here in the states, to such places as Las Vegas and New Orleans, and overseas trips to locales as different as Great Britain, Brazil, Morocco, Cancun, and Puerto Rico.
Although the report noted that the district has addressed many of its internal control weaknesses, it also claimed that there "continues to be areas for improvement." More specifically, the report criticized the district for not continuing to use purchase orders, "that are not press-numbered" and for approving purchase orders "before the affected budget line-item is checked for sufficient unencumbered funds to cover the purchase."
On the matter of internal controls, perhaps the most brazen example had to do with vendor name changes in the district's computer system.
"Changes were made to the district's computerized accounting records to conceal fraudulent purchases totaling more than $6 million," the report stated. "District checks were made payable to one vendor, while reports generated form the district's computer system showed the same payments being made to a completely different vendor."
From January 1996 through July 2004, numerous vendor name changes were made in the district's computers. This allowed the transfer of monies from a vendor's account to personal gain by district personnel.
For example, payments made to American Express were listed as those made to Sargent-Welch, a district vendor. One such check totaled $1,490,359. A check for $736,055 made to Chase Manhattan Bank was listed as a check to another district vendor, EDC Publishers. In addition, a check for $896,730 made to Citibank was listed as a check made out to Nassau County BOCES, an arm of the county public school system.
All this is probably what Alan Hevesi had in mind when he termed the "breadth and depth of the schemes" of the scandal as "astounding," "shocking," and "a complete violation of the public trust."
All throughout its investigation of the scandal, the comptroller's office has tendered recommendations on how the district can improve its financing methods. Among the many recommendations listed in its most recent report, the comptroller's office urged the board to:
* Establish policies that clearly state the circumstances under which district employees may receive reimbursements and require that claims are sufficiently detailed and adequately audited prior to payment;
* Establish policies that specify the circumstances under which employees may travel. Initiate a travel request and approval process and require that all travel-related expenses are sufficiently detailed and adequately audited prior to payment;
Finally, Hevesi's office advised that "journal entry capability should be given only to those employees whose job specifications require that they perform this function."