District 13 tackles state audit concerns

Valley Stream District 13 was the last of the four Valley Stream school districts to be audited by the New York state comptroller’s office. And although no fraud or misuse of funds was uncovered, the report did make several recommendations to strengthen financial controls.

The district has more money than necessary in its employee benefit accrued liability reserve fund, the audit stated. The fund is used to pay employees for unused sick, vacation and other leave time when they leave the district. According to the report, the district had about $4.2 million in the fund as of June 30, 2008, but had a potential liability — the total owed to employees if everyone who was eligible to retire did so at the same time — of only $925,000. The comptroller’s office said the account was over-funded by $3.3 million.

Meredith Brosnan, assistant superintendent for business, said the district has since recalculated its liability to include all employees who have been with District 13 for a certain period of time. The new figure is $2.7 million, Brosnan said, meaning that the excess is about $1.5 million.

The comptroller’s report stated that while there is no limit on how much money can be in the fund, setting aside excess funds is not a good use of district resources and can lead to higher than necessary tax levies. It was also noted that in previous years, the district has used operating expenses to fund unused leave payments rather than the fund set aside for that purpose. Brosnan said that the district did in fact use its yearly budget for these payments when times were good as a chance to build up the reserve. Now that times are bad, she said, the district will benefit from having that money set aside.

She added that the district would now make all payments for unused leave time from the reserve fund.

Employee or contractor?

The district’s treasurer should be an employee of the district, not an independent contractor, the audit stated. However, district officials dispute this claim and do not plan to make a change.

The district treasurer was appointed by the Board of Education and is paid a retainer, as opposed to a salary. She also works at home. Brosnan noted that if the treasurer were an employee, the district would have the added cost of mandatory Social Security contributions and retirement benefits. District 13 saves money with its current arrangement, she said.

Additionally, Brosnan said, the treasurer’s independent contractor status separates her from the business office and district administrators, providing an extra level of checks and balances over district finances.

The comptroller’s report stated that there is inadequate supervision of the treasurer’s work because she works at home. Brosnan countered that as assistant superintendent for business, she approves all money transfers the treasurer makes. Brosnan said, however, that she does not have the authority to tell the treasurer what to do because she works for the school board.

Superintendent Dr. Elizabeth Lison said there is no law that requires the treasurer to be an employee and that auditors from the comptroller’s office did not make their case. “They admitted when we challenged ‘Where is the law?’ that there is none,” Lison said.

She added that the District 13 Board of Education and administration are happy with the current structure and do not plan to make the change recommended by the audit. “I’m very comfortable the way it is,” Lison said. “It seems so clean for [the treasurer] to be an independent contractor.”

The audit concluded that there was not enough segregation of duties in the district’s payroll operations. It stated that there is one account clerk responsible for all payroll functions. Brosnan said that she oversees the payroll, reviewing and approving it each pay period.

The district also does an annual payroll observation. Representatives from the district’s auditing firm visit each school and distribute paychecks. Each employee must show photo identification to ensure that there are no fictitious people on the payroll, Brosnan explained.

In addition, the district has added a part-time position to the business office to manage benefits. Brosnan said that where the district cannot segregate duties, it has other controls in place to prevent abuse. “Any small district has the same problems,” she said, “and you employ other means to control what’s happening.”

Professional services

District 13 did not seek competitive proposals for several of its professional services. Though not required by law, it is a good business practice to ensure the best use of taxpayer dollars, the report stated.

Lison said that unlike the purchase of goods, districts do not have to select the lowest responsible bidder for professional services. The comptroller’s office recommends, however, that districts seek competitive proposals. Brosnan said that the district now uses requests for proposals when seeking professional services.

As recommended by the audit, the district now also has formal written agreements with all of its professional service providers, and in the future will ensure that all such contracts are approved by a board resolution.

Information technology

The district’s financial information is not properly safeguarded, the audit stated. Although the district’s financial software can generate audit logs, those reports have not been regularly reviewed by top administrators. Audit logs monitor who accesses financial records and the actions they perform. Brosnan said she now regularly reviews the audit logs.

The audit further stated that the district lacked a sufficient disaster recovery plan for its information technology system. Though the district had a detailed outline of its backup procedures, it did not list crisis managers, emergency contact information, the location of backup computers and other information. Brosnan said that she and district technology specialist Linda Alessi have now created a formal disaster recovery plan.

The report stated that someone in the district’s business office also had system administrator rights to the financial software, and that person could set his own level of access. “It increases the risk that he could initiate and conceal improper transactions,” the audit stated.

The role of system administrator has now been assumed by Alessi, who has no dealings with the district’s business operations. “That was a good recommendation,” Lison said.

Comptroller Tom DiNapoli’s office has been auditing every school district in the state since a financial scandal unfolded in the Roslyn School District, with administrators embezzling millions of dollars. Lison said the audit of District 13 showed no wrongdoing by district leaders, and that financial controls will be improved because of the review.