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The information is provided to assist the Subcommittee in carrying out its oversight responsibilities related to audits of financial and reporting practices; performance audits or reviews; ethical conduct issues arising from audits; internal controls; and compliance with laws, regulations, and policies.
1.         Department’s Internal Controls Process and Certification – Staff will brief the Subcommittee members on the Department’s processes to help ensure key risks are identified and adequate internal controls are in place.  Staff will also brief the Subcommittee members on the requirement to annually certify to the Division of Budget that the Department has complied with certain provisions related to internal controls.  The provisions include establishing and maintaining guidelines for a system of internal controls, maintaining a system of internal controls, designating an internal control officer, and others.
2.         NYC Department of Education – Efforts to Improve Fiscal Management – Department staff will brief the members on efforts to improve fiscal management in the New York City Department of Education.
3.         NYC Department of Education – Early Grade Class Size Reduction – Department staff will brief the members on Department activities related to the Early Grade Class Size Reduction Program.
Reports are provided as follows:
Office of the State Comptroller
NYC DOE Early Grade Class Size Reduction
Controls over State Aid Processing
Katonah-Lewisboro School District – Investigative Report
Enlarged City School District of Troy
For items one (Department’s Internal Control Process and Certification), two (NYC Department of Education – Efforts to Improve Fiscal Management), and three (NYC Department of Education – Early Grade Class Size Reduction), the advice and guidance of the Members of the Audit Subcommittee are sought.
For item four (Completed Audits), no further action is recommended.
The following materials are attached:
·              Minutes of the March Meeting (Attachment I)
·              Audit Report Abstracts (Attachment II)
Department‘s Internal Controls Process and Certification
NYC Department of Education – Efforts to Improve Fiscal Management
NYC Department of Education – Early Grade Size Reduction
Audit Report Abstracts (Attachment II)
SED and OSC Staff
MEETING OF THE REGENTS SUBCOMMITTEE ON AUDITS
Subcommittee Members in Attendance:
Regent Geraldine D. Chapey, Chair
Regent Joseph E. Bowman, Vice Chair
Regent Milton L. Cofield
Other Members of the Board of Regents in Attendance:
Regent Roger B. Tillis
Regent Chapey opened the meeting by alerting everyone that the Regents Committee on Higher and Professional Education will be seeking input from the Regents on possible changes in regulations governing the accounting profession. She encouraged all of the Subcommittee members to attend this session scheduled for Tuesday March 21, 2006.
The Subcommittee members approved the minutes of the prior meeting.
Education Department Oversight of Non-Degree Granting Proprietary Schools
Joseph Frey and Carole Yates met with the Subcommittee and described the Department’s oversight activities related to non-degree granting proprietary schools. There are approximately 400 schools serving around 100,000 students. The schools can be either for profit or not-for-profit. In 1990, the law changed which significantly enhanced the Department's responsibility and provided a funding source for staff. At the same time, the law created a fund to protect students in case a school should suddenly close its doors. The unit responsible for monitoring, the Bureau of Proprietary School Supervision (BPSS), is required to visit the schools once every four years. However, student complaints are followed up and some schools are visited much more frequently. BPSS has the ability to place undercover operatives in the schools to gather information on the integrity of the school in admitting students.
The Department has on occasion partnered with federal agencies, the New York State Attorney General and local district attorneys.  The BPSS meets with an advisory council of school representatives four times a year and there are directors’ meetings held periodically to share information with the schools.  The Members of the Subcommittee challenged staff to develop a risk-based approach to monitoring schools to supplement those identified by student complaints.
Staff was available to answer questions on the following audits:
Seaford Union Free School District Report FW-1005-2
Small Wonder Preschool Inc. Report CA-0503-1
Brentwood Union Free School District Internal Controls Report 2005M-70
Voorheesville Central School District Report 2006M-4
Audit of the Tuition Reimbursement Account for the Fiscal Year Ended March 31, 2005 Report 2005-S-25
Reimbursement to Nonpublic Schools for State Mandated Services Report 2005-S-20
ASA Institute of Business and Computer Technology Report 2004-T-4
2006 - 2008 Office of Audit Services Audit Plan
Staff informed the members that they are about to begin work on the next two-year audit plan. The current one expires June 30, 2006. Deputy Commissioners were contacted and asked to identify potential audit areas. Staff will keep the Subcommittee members informed as the plan development progresses.
Regents Subcommittee on Audits
Office of Audit Services
Monroe 2 - Orleans BOCES Special Report
7th and 8th Judicial Districts
The Office of Audit Services received a complaint that three senior BOCES officials were receiving free automotive repair and maintenance services provided by students. The audit found no evidence that any BOCES officials had received free automotive and maintenance services. The audit did find the BOCES lacked adequate internal controls to ensure all automobile services were billed and paid for in a timely manner, and as a result two BOCES officials did not pay for services until months after the services were provided. The two officials paid the remaining balance on the day the audit fieldwork began.
The report recommends the Board review its policy related to sales of services, and management develop appro-priate procedures to implement the policy. The report also recommends defining certain staff duties, using pre-numbered work orders, releasing vehicles only upon payment, requiring receipt of outstanding payments at the time of employee separation, establishing an automated accounting system, and collecting payment on out-standing work orders.
BOCES officials agree with the recommendations and have taken action to implement them.
Office of the State Comptroller
New York City Department of Education Administration of the Early Grade Class Size Reduction Program
1st, 2nd 11th and 12th Judicial Districts
The audit found that The New York City Department of Education (DOE) should have provided 14,853 early grade classes annually.  However, DOE did not achieve that goal in 2004-05 when there were 13,287 early grade classes, 1,566 fewer than the goal.  If the DOE had provided all of the required classes, average class size would have been reduced from 21.3 to 19.1 in kindergarten through grade three.
The audit acknowledged that a lack of space was an important impediment to creating new early grade classes, but states DOE could have done a better job of allocating program resources.
The audit also identified opportunities to reduce the number of large classes by adjusting schools' service boundaries.
The report recommends the DOE develop procedures to assure schools add the prescribed number of new classes, and formally review student/teacher ratios and take steps to ensure they stay below 20 to 1.  The report also recommends the development of procedures to ensure funding is used for additional classes and a process for factoring in building capacities into funding allocation determinations. The report also recommends personal service costs for team teachers not be charged to the program and school boundary lines be formally reviewed to identify opportunities to reduce class size.
DOE officials disagree with the auditor's methodology for calculating the number of new classes (recommendation 1), they agreed not to charge personal service costs to the program (recommendation 5), and did not specifically agree or disagree with the other recommendations (recommendations 2,3,4,6).
Controls Over State Aid Processing – Follow-Up
This is a follow-up to a confidential report issued on April 26, 2004 that examined the general and application controls over the State aid payment system. The initial audit found the Department’s controls were generally sufficient to ensure the integrity of data maintenance and processing; however, several recommendations were made to strengthen controls. The follow-up found the Department had made considerable progress in implementing most of the initial recommendations.  The specific details are not included due to the potential risk associated with the release of such information.
Recommendations are not included in the published report.
This is a report of an investigation of potential criminal activity at the school district. The investigation initially focused on allegations of employee misuse of District credit cards and an employee receiving personal benefits in exchange for favorable treatment afforded to vendors. The report concludes there is no credible evidence to support allegations of District employees receiving favorable treatment from vendors. The investigation was expanded to include a review of the District's Individual Benefit Fund (IBF).
The review found credible evidence of potential fraud-ulent conduct in connection with the IBF.  These individual cases were referred to the NYS Attorney General’s Office.  Out of 135 reim-bursement claims reviewed, 125 were reimbursed without proper receipts or proof of payment.
No credible evidence was found to corroborate fraud-ulent credit card charges, but considerable evidence of waste and abuse of District assets was found. Over one half of all credit card purchases reviewed were paid without supporting docu-  mentation.  The District was unable to locate numerous items purchased using District credit cards including two computers with a cost of over $5,000.
The report recommends the District comply with the requirements of the Comp-troller's Five Point Plan, establish clear written guide-ines and procedures for the IBF and credit card use, review and revise its internal audit policy, create an audit committee and, if appropriate, seek reimbursement for IBF payments and/or credit card purchases that were improperly obtained.
District officials were not asked to respond to the investigative report. The Office of Audit Services has requested the District submit a corrective action plan addressing the recommendations.
Catskill Central School District Purchasing, Capital Assets, and Inventories
The audit found that although the District has established internal controls to protect against fraud, abuse and professional misconduct re-lating to purchasing, there were instances where the controls were not operating effectively. The District did not competitively bid for gas and electric services and did not follow certain requirements for soliciting requests for pro-posals and quotes for audit services and certain other purchases.
The report also found certain internal controls related to capital assets and inventories need to be improved.
The report recommends the District adhere to General Municipal Law, solicit bids for natural gas and electric services, monitor compliance with its own procurement policy, and periodically solicit competition for awarding transportation contracts.
The report also recommends developing a comprehensive capital assets policy, designating a property control manager, properly identifying assets that need to be included in the inventory, and requiring an annual physical inventory be conducted.
District officials generally agreed with the recom-mendations and indicate they will be implemented in a timely manner.
Brentwood Union Free School District Independent Audit Services
The audit found the District did not have a policy for procuring audit services. The District used the same CPA firm from 1992-93 to 2003-04. While the CPA firm's work satisfied the minimum requirements of generally accepted auditing standards, the audit noted two areas where the firm could have improved its audit approach and documentation. The firm did not document how to respond to four of the five fraud risks identified during planning and did not test for the existence of capital assets.
The report recommends the Board establish policies and procedures relating to the procurement of professional services. The report recom-mends the District prepare a well planned written RFP for audit services at least once every five years and maintain all written proposals.
The report also recommends District officials and Board members educate themselves on the scope and limitations of the annual independent audit and establish an audit committee.
District officials generally agreed with the recom-mendations and indicate they have taken actions to implement.
Examination of Tentative Budgets of the; Monroe-Woodbury Central School District, Liberty Central School District, Greater Amsterdam School District, Enlarged City School District of Troy and Schenectady City School District
These audits were designed to answer two questions relative to the districts' budgets for the 2006-07 school year.
·        Are the District’s significant revenue and expenditure projections in the proposed budgets reasonable?
·        Is the District’s budget structurally balanced so that recurring costs are financed with recurring revenues?
The audits found all of the districts’ revenue and expenditure projections to be reasonable and the budgets structurally balanced.
The reports on Liberty, Amsterdam, and Schenectady caution the Districts that they have projected State aid at a level below the legislative budget proposal. The audit found the districts’ estimate of State aid to be conservative. The reports urge the Districts to closely monitor State aid and be prepared to adjust the appropriation of fund balance if possible.
The report on Troy cautions the District that they are projecting State aid at a level higher than proposed by the legislature.
The report on Monroe-Woodbury cautions the District that it may be using too much fund balance. The reports on Amsterdam, Troy and Schenectady state that the Districts are in danger of exceeding the two percent limit for fund balance.
1 recommendation to each district
The reports recommend each district prepare a corrective action plan to address each issue identified in the report.
2nd and 10th Judicial Districts
The School received $2.3 million in Tuition Assistance Program (TAP) awards for the three academic years ending June 30, 2003. The audit disallowed $427,061 in TAP funds because the students were incorrectly certified as eligible for the awards.
The specific reasons for the students being ineligible were:  graduates not provided program as approved, not matriculated, not in good academic standing, not in full-time attendance, and excess TAP award.
The audit also identified the use of unlicensed teachers and missing attendance registers.
2 to the Higher Education Services Corporation (HESC)
1 to the State Education Department
The report recommends HESC recover the funds plus applicable interest and ensure the School complies with TAP requirements.
The report recommends the Department ensures the School complies with re-quirements related to approved programs, full-time attendance, matriculation, good academic standing, teachers' licenses, and attendance registers.
HESC and Department officials agree with the recommen-dations.
New York City Department of Education
A Summary of Findings and Recommendations from Fiscal Years 2004 and 2005 Internal Audits of Schools of the Department of Education (DOE) for the City of New York
The DOE's Office of Auditor General in conjunction with Ernst and Young, LLP prepared the report. It presents summary findings of internal audits conducted at 27 elementary/middle schools, 13 high schools and 6 Regional Operations Centers.
The audit found exceptions in many of the areas reviewed. The specific areas addressed included recordkeeping for per diem, paid class coverage, and covered teacher absences. The report also found that teachers were being paid for their regular assignment on days when they were marked absent from their regular assignment, but performed a per session assignment. The audit also found some expenditures for goods and services were not supported by documents and approved in writing by the principal, weaknesses in documenting procurement cards (p-cards) purchases, weaknesses in performing computer and audio-visual equipment inventories, and weaknesses in some controls over fund raising activities.
The report contained 61 recommendations. Some of the key recommendations relate to improving controls over the payment of per diem substitute teachers by maintaining an absentee log and utilizing the computer system. The report also recommends strengthening controls over the per session payment of individuals absent from their regular duties. The report recommends improved documentation and control over the payment and procurement for goods and services including those purchased with procurement cards.
A series of recommendations relate to improving controls over the use of consultants for professional services, and the receipt of and accounting for computer and audiovisual equipment.
Finally, the report contains recommendations to better control fund raising receipts and expenditures, and to improve the distribution of payroll checks and direct deposit devices.