By Andrew Coen
Although the audit, conducted by state Comptroller Alan Hevesi's office at the request of the school board, did not find any evidence of illegal activity, it noted significant weaknesses in the district's fiscal management, including the failure to separate duties in the accounting office and shortcomings pertaining to bidding procedures. The audit reviewed in detail internal controls over all basic financial operations, including purchasing, payroll, cash collections and accounting.
"The main important thing is that [the state comptroller's office] did not find any wrongdoing or fraud," said Lawrence school board President Kathy Raquet. "I hope it will calm some of the concerns in the public."
School districts across the state are being urged by the comptroller's office to study their expenditures more closely in light of recent financial scandals in the Roslyn and William Floyd school districts. "Given the recent negative public perception of school finances, we are gratified that there was no evidence of illegal activity or fraud," said Lawrence Superintendent Dr. John Fitzsimons. "The findings and recommendations made by the auditor will enable us to improve policies, procedures and internal controls."
After the Lawrence school board requested an audit and was granted the request by the comptroller's office last August, state auditors spent more than five months in District 15, from late August through early this year, examining internal controls and investigating taxpayer complaints.
"The lack of internal controls at the Lawrence school district puts the district at substantial risk for potential wrongdoing," said Hevesi. "Without strong systems in place and proper board oversight, taxpayers have little assurance that the accounting records are correct and that taxpayer money is being spent properly."
Some of the problems that auditors discovered in Lawrence's internal financial controls included:
n Personnel overriding the computerized accounting system controls as well as changing vendor names after checks had been processed. Such controls are needed to prevent inappropriate transactions. Auditors also found that a former employee still had access to the system, and that duplicate authorization rights existed for employees who changed their names. In addition, the district's independent auditor failed to test the district's computerized system to ensure that proper controls were being utilized.
n The district failed to follow its own procurement policy and competitively bid out purchases. Auditors examined purchases from 23 vendors and found six questionable ones. For example, the district purchased $229,486 worth of books from two vendors that were not subject to competitive bidding.
n There was no reconciliation of bank statements. The treasurer's office had not reconciled the general fund disbursement account, which averages millions of dollars in transactions each month. The unresolved monthly differences from July through December 2004 between the adjusted bank balance and the ending balance in the ledger account ranged from $5,814 to $1,187,859. Auditors were informed that this was a new account that had been opened because the district could not reconcile the old account, and that the district was considering closing the current account because of the same problem.
n There were lax controls over assets, the audit reported. The district did not have a complete and accurate record of capital assets. For example, it paid $32,737 for 33 Palm Pilots. However, auditors found that 27 of the devices were not being used by anyone, and one could not be accounted for by staff. When auditors asked about them, they were informed that the Palm Pilots were now essentially obsolete, and that $7,225 had been spent on software that was never used and training that never took place.
n There was improper oversight in the treasurer's office. Duties were not segregated to ensure that no single individual controlled most or all phases of a transaction, and rubber stamps were improperly used to affix the signature of the treasurer and deputy treasurer on checks. District officials did not properly approve journal entries, which involved the electronic transfer of cash from one account to another. Auditors noted that the lack of oversight could result in improper disbursement or use of district funds.
n There were problems with claims processing. Auditors examined 67 claims and related purchase orders supposedly reviewed by the internal claims auditor. They found that some claims lacked proper documentation, and that two claims, totaling $3,479, were paid twice. District officials obtained reimbursements for these claims after auditors brought the matter to their attention.
n There was a lack of policies for payroll and administrative expenses. The district did not have policies governing the payroll process, travel, cell phones, credit cards and more. As a result, time records were not maintained for some employees, and expenses were not properly verified.
The audit studied the period from July 1, 2002 to Aug. 27, 2004, a time of transition for District 15. Fitzsimons was hired as superintendent in 2003, and the current assistant superintendent for business, Deirdre Gambino, started in January 2004. In addition, three new school board members were elected. "Our administrative team is relatively new, as are the majority of the Board of Education members, and we see this audit as a tool to assist us in re-establishing confidence in how we manage our district resources," said Fitzsimons. "[The] findings and recommendations will enable us to improve policies, procedures and internal controls."
According to Hevesi, since the state audit was completed, District 15 officials have enhanced controls over administrative spending and have started to develop a corrective-action plan to improve the district's process for dealing with finances. "I am encouraged by the positive response of the Board of Education and district officials to the audit findings, and urge them to take decisive action to improve their control environment," he said.
The audit makes 20 recommendations to correct weaknesses in the district's system of internal controls, including:
n Conducting a comprehensive review of computer operations to address internal control deficiencies.
n Requiring a claim to be sufficiently detailed and verified that proper procurement procedures were followed.
n Establishing a comprehensive capital-asset policy and appointing a property-control manager.
n Separating duties to reduce the possibility of fraud.
Fitzsimons said that he plans to recommend to the school board that as a way of improving the district's separation of duties, in the future the treasurer and internal auditor be contracted from outside the district and report directly to the school board rather than having someone from within the district perform the task. "Based upon their recommendations, we have already begun a corrective-action plan," said Fitzsimons. "We believe that with the implementation of this plan, we will ensure a strong internal-control environment."
Although the state audit was the first in Lawrence, the district conducted internal audits starting in 2002, when $18 million of reserve funds was discovered to have been spent by the board.
Raquet said that the recent audit is being used by the board as helpful information to improve the way it operates in the future. "We're using [the audit] as an educational process and a learning experience," said Raquet. "Everybody should go through this to learn the different options and procedures. School districts need guidance."
A separate state audit of the district's annual internal financial reports will be completed soon.
Comments about this story? ACoen@liherald.com or (516) 569-4000 ext. 210.
