The New York State Comptroller's office has completed an audit of the Sewanhaka Central High School District and the audit claims there were deficiencies in the district's controls and procedures over procurement of professional services, computer operations and disposition of capital assets.

The audit, which covered the period from July 1, 2005 to June 30, 2006, claims that district officials did not consistently follow the board's policy requiring competition or Request for Proposal (RFP) when awarding contracts for professional services.

According to the audit, the district paid 19 professional service providers a total of over $1.8 million without soliciting any form of competition and 21 of the services procured were not approved by the board. In eight instances totaling $355,554, the professional services were rendered without a contract.

The comptroller's office reviewed payments to 25 professional service providers and found the district paid eight professional services firms a total of $1,796,626 for services ranging from $42,845 to $1,158,411. Seven of these services totaling $1,726,326 were procured without soliciting competition alternate proposals as required by district policy. The other service was provided pursuant to a litigated settlement.

Although the board approved a $1,158,411 contract to BK International Brokers Ltd. for insurance, the comptroller's office claims the board did approve the other six services, which was mainly for therapy and tutoring. Of the services provided by the board, the district did not have written contracts with three providers who were paid a total of $296,922.

In addition, the audit claims the district paid 13 service providers $131,557 for professional services ranging from $3,907 to $18,853. Eleven of the services totaling $117,697 were procured without requesting two or more written quotes as required. Only two of the 13 purchases were approved by the board and four of them, totaling $37,641, had no contract.

"The failure to follow procurement policies and procedures increases the risk that goods and services may not be priced economically, that they may not be of the best quality, and that they may not be purchased in appropriate quantities," the audit stated.

In the district's response to the audit, as submitted by Sewanhaka Board of Education President Jean Fichtl, payments to BK International Insurance Brokers totaling $1,158,411 were not fees for professional services rendered, but were remittances of premiums for district property and liability insurance policies. The amount paid to them was the total premium, not a broker's fee. The commission, the board of education claims, is determined by the insurance companies.

In the letter to the state comptroller, Fichtl points out that one of BK International's function is to obtain competitive quotations each year on behalf of the district. However, the state comptroller suggested that the district should widen its competitive pool by promoting competition among insurance brokers.

The district also commented that payments were made for professional services for home instruction, nursing services, therapists and a psychiatrist. "These services were provided to students with special needs and as such, we determined vendors based on what was in the best interest of the students requiring those services. As a matter of fact, payments to two of the vendors were to service providers indicated on the students' Individual Education Programs (IEPs). In these cases, we were required to use those vendors," the board of education stated.

However, the state comptroller's office maintains that professional services should be procured through a competitive process and procuring professional services through a competitive process rests with district management, not with the Committee on Special Education, which is responsible for the development of students' IEPs.

A few years back, the Sewanhaka Central High School District sold a portion of the Alva T. Stanforth Junior High School property to the Elmont Library for the purposes of erecting a new Elmont Library for $2,146,000. The transaction even found its way into the comptroller's report.

According to the terms of the contract, the Sewanhaka Central High School District agreed to pay the library $1,586,000 for the demolition and removal of the building and an additional $560,000 for improvements to the driveway and parking area.

According to the state comptroller's office, the district did not record the receipt of the $2,146,000 as revenue or the payments to the library of $1,586,000 and $560,000 as expenditures in its financial records. The transaction was not reported in the district's audited financial statements at June 30, 2005 and the reported values for land and buildings were not reduced to reflect the disposition of the assets. As a result, fixed assets were overstated at that date.

The district claims that it originally recorded the receipt as revenue, but later re-coded the entry at the advice of the independent auditor. Since the receipt and the payments would eventually wash out to zero, recording the receipt as a revenue and the disbursements as expenditures would have artificially inflated both figures.

However, the state comptroller stated that recording financial records as they occur is a basic tenet of accounting principles. The proper recording and reporting of legitimate financial activities does not artificially inflate revenue or expenditures but would instead disclose the correct nature of such financial transactions.