oversight

New York State Local Educational Agencies Systems of Internal Control Over American Recovery and Reinvestment Act Funds.

Published by the Department of Education, Office of Inspector General on 2010-02-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

              U.S. Department of Education 

               Office of Inspector General 


       American Recovery and
       Reinvestment Act of 2009
New York State Local Educational Agencies Systems of Internal Control 

       Over American Recovery and Reinvestment Act Funds 


                            Audit Report 





  ED-OIG/A02J0009                                February 2010
                                 UNITED STATES DEPARTMENT OF EDUCATION
                                      OFFICE OF INSPECTOR GENERAL

                                                                                                      AUDIT SERVICES

                                                              February 17, 2010

Dr. David Milton Steiner
Commissioner of Education
New York State Education Department
89 Washington Avenue
Albany, NY 12234

Timothy J. Gilchrist
Senior Advisor to the Governor for Infrastructure and Transportation
New York State Economic Recovery and Reinvestment Cabinet
Executive Chamber
State Capitol
Albany, NY 12224

Dear Dr. Steiner and Mr. Gilchrist:

This final audit report presents the results of our review of the designed systems of local educational
agency-level internal control over American Recovery and Reinvestment Act funds in New York.

If you have any additional comments or information that you believe may have a bearing on the resolution
of this audit, you should send them directly to the following Education Department official, who will
consider them before taking final Departmental action on this audit:

                                             Thelma Meléndez de Santa Ana, Ph.D

                                         Office of Elementary and Secondary Education

                                                 U.S. Department of Education

                                              400 Maryland Ave S.W. LBJ, 3W315 

                                                     Washington, DC 20202 


It is the policy of the U. S. Department of Education to expedite the resolution of audits by initiating timely
action on the findings and recommendations contained therein. Therefore, receipt of your comments within
30 days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the Office of
Inspector General are available to members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.


                                                                 Sincerely,
                                                                 /s/

                                                                 Daniel P. Schultz
                                                                 Regional Inspector General for Audit


The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational excellence
                                                             and ensuring equal access.
               Abbreviations/Acronyms Used in This Report 



ARRA             American Recovery and Reinvestment Act of 2009

C.F.R.           Code of Federal Regulations

ED               U.S. Department of Education

Harborfields     Harborfields Central School District

IDEA             Individuals with Disabilities Education Act Part B

Kiryas Joel      Kiryas Joel Union Free School District

LEA              Local Educational Agency

NYCDOE           New York City Department of Education

NYS              New York State

NYSED            New York State Education Department

OESE             Office of Elementary and Secondary Education

OIG              Office of Inspector General

OMB              Office of Management and Budget

SAM              School Allocation Memorandums

SFSF             State Fiscal Stabilization Fund

Title I          Title I Part A of the Elementary and Secondary Education Act
              New York State Local Educational Agencies Systems of Internal Control 

                                       Over ARRA Funds

                               Control Number ED-OIG/A02J0009

                                                    PURPOSE
The American Recovery and Reinvestment Act of 2009 (ARRA) places a heavy emphasis on
accountability and transparency, and in doing so, increases the responsibilities of the agencies
that are impacted by ARRA. Overall, the U.S. Department of Education (ED) is responsible for
ensuring that education-related ARRA funds reach intended recipients and achieve intended
results. This includes effectively implementing and controlling funds at the Federal level,
effectively ensuring that recipients understand requirements and have proper controls in place
over the administration and reporting of ARRA funds, and promptly identifying and mitigating
instances of fraud, waste, and abuse of the funds.

The purpose of our review was to determine whether agencies charged with responsibility for
overseeing ARRA funds have designed systems of internal control that are sufficient to provide
reasonable assurance of compliance with applicable laws, regulations, and guidance. Proper
internal controls are essential for ensuring that ARRA funds are administered properly and used
in ways that coincide with the intent of ARRA. This report provides the results of the reviews
we conducted at three selected New York local educational agencies (LEAs), the New York City
Department of Education (NYCDOE), the Kiryas Joel Union Free School District (Kiryas Joel),
and the Harborfields Central School District (Harborfields). We focused our review on the
design of controls over data quality, cash management, and use of funds at each selected LEA.
These controls are a key aspect in the proper administration of ARRA funds for Title I Part A of
the Elementary and Secondary Education Act (Title I), Individuals with Disabilities Education
Act Part B (IDEA),1 and the State Fiscal Stabilization Fund (SFSF).


                                                    RESULTS
SULTS
Our review consisted of an assessment of the designed systems of internal control planned for
ARRA funds at each selected LEA. At the three LEAs, those systems consisted of internal
controls established prior to the passage of ARRA with some modifications. Since ARRA is in
its early stages, the LEAs were still in the process of planning for implementation. Therefore,
we reviewed the designed systems of LEA controls planned for ARRA funds at the time of our
fieldwork.2

The LEAs we reviewed were making efforts to ensure the proper administration of ARRA funds.
For instance, NYCDOE, Kiryas Joel, and Harborfields planned to use existing systems to
account for and track ARRA funds but planned to use separate accounting codes to distinguish
Title I, IDEA, and SFSF ARRA funding in their accounting systems. NYCDOE, Kiryas Joel,
and Harborfields use automated accounting systems. The LEAs also planned to use ARRA
funding mostly for salary related expenditures.


1
    IDEA includes only Grants to States. 

2
    We conducted our fieldwork from June 11, 2009, through August 19, 2009. 

Audit Report
ED-OIG/A02J0009                                                                      Page 2 of 28

Based on our assessment, we concluded that NYCDOE and Harborfields had designed systems
of internal control that were generally sufficient to provide reasonable assurance that ARRA
funds are administered in compliance with applicable laws, regulations, and guidance. However,
additional steps should be taken to further strengthen the controls over data quality, cash
management, and use of funds. Although NYCDOE and Harborfields had implemented certain
procedures in anticipation of meeting ARRA reporting requirements, they should establish
additional data quality processes and controls to ensure their readiness in collecting and reporting
data in order to comply with all ARRA reporting requirements. We also noted that the two
LEAs need to incorporate in their written policies and procedures the internal controls covering
areas related to cash management and use of funds. Our conclusions and findings pertaining to
NYCDOE and Harborfields are presented under PART 1 and PART 2, respectively, of this
report section.

We concluded that Kiryas Joel’s designed systems of internal control were not adequate to
provide reasonable assurance that ARRA funds are administered in compliance with applicable
laws, regulations, and guidance. Kiryas Joel had insufficient controls in many areas related to
data quality, cash management, and use of funds. Specifically, Kiryas Joel lacked adequate
internal controls to ensure compliance with ARRA reporting requirements. We noted that Kiryas
Joel lacked adequate controls in safeguarding payroll checks. We also found that Kiryas Joel did
not have sufficient controls to minimize the risk of funds being improperly disbursed.
Particularly, we found that Kiryas Joel’s accounting software, ------------, did not have adequate
controls to prevent the use of duplicate check numbers for payroll and non-payroll expenses.
This may be a more pervasive statewide issue because ------------ is used by more than 300 LEAs
across New York, as noted in the Other Matters section of this report. Also, Kiryas Joel’s
written policy manual did not reflect current procedures that were followed by its employees.
Our conclusions and findings pertaining to Kiryas Joel are presented under PART 3 of this report
section. Because of the material weaknesses identified at Kiryas Joel, OIG determined that an
audit of this LEA is warranted.

Given that much of the ARRA funding had not yet reached the States and localities, at the time
of our fieldwork, we could not validate nor test the accuracy of the statements made by officials
regarding their accounting and tracking systems.

We provided the preliminary copy of our final report for review and comment to the New York
State Education Department (NYSED) and the New York State (NYS) Governor’s Office on
December 9, 2009. The NYS Governor’s Office did not provide comments. In NYSED’s
comments dated December 23, 2009, NYSED did not specifically concur or disagree with our
findings, but stated it was prepared to implement all of our recommendations. NYSED’s
comments, which also included separate comments from the three LEAs, are summarized at the
end of each finding. The entire narrative of its comments is included as Attachment 1 to this
report.
Audit Report
ED-OIG/A02J0009                                                                                     Page 3 of 28

PART 1: NYCDOE SYSTEM OF INTERNAL CONTROL OVER ARRA FUNDS

NYCDOE has taken certain steps toward ensuring the proper administration of ARRA funds.
NYCDOE indicated that it intended to use its ARRA funds for employee salaries. NYCDOE
planned to use existing accounting systems to account for and track ARRA funds by setting up
separate accounting codes for Title I, IDEA, and SFSF funding. Additionally, NYCDOE schools
used the Galaxy budgeting system to schedule budgeted expenditures for ARRA allocations.
The majority of NYCDOE’s budget is allocated to schools directly by NYCDOE’s Division of
Budget Operations and Review and is based on the allocation formula. School Allocation
Memorandums (SAM) used to communicate specific information on school ARRA allocations
and applicable requirements were provided to the schools and were available online at the
NYCDOE Web site.

In addition, Galaxy had built-in filter rules for each allocation category to help control how funds
were used. This enabled NYCDOE to limit the types of expenditures that schools could schedule
to a specified allocation category based on policy and funding mandates. To assist school
principals, NYCDOE developed a Galaxy Survey Tool that included a list of reasons to
accommodate correct scheduling of ARRA funds.

Furthermore, NYCDOE indicated that it planned that ARRA funds would not be used for
purchases made with purchase cards and imprest funds.3 NYCDOE indicated that it added
controls to its accounting systems that prevented ARRA funds from being used to pay for
purchases coded as purchase cards transactions.

FINDING NO. 1: 	 NYCDOE Lacked Progress in Establishing Processes to Ensure
                 Compliance with ARRA Reporting Requirements

NYCDOE had implemented certain procedures in anticipation of meeting ARRA § 1512
reporting requirements. NYCDOE created separate accounting codes for tracking ARRA funds
in its accounting systems and a methodology for estimating the number of jobs saved or created.
However, at the time of our fieldwork, NYCDOE had not made sufficient progress in
establishing processes and controls to ensure its readiness in collecting and reporting accurate
and complete data to ensure compliance with all ARRA reporting requirements. Specifically,
NYCDOE planned to use its existing systems and procedures, without modification, to collect,
compile, and report the data required under ARRA. However, according to both NYCDOE and
NYSED officials, NYCDOE had a long history of late submissions of its FS-10, FS-25, and
FS-10F forms to NYSED.4 Because NYCDOE did not plan to modify its existing systems and
procedures for reporting, NYCDOE may not consistently meet ARRA reporting requirements in
a timely manner.

In addition, at the time of our fieldwork, NYCDOE officials stated that NYSED had not
provided sufficient guidance to NYCDOE regarding the reporting requirements for ARRA.

3
  Purchase cards and imprest funds are the methods used by NYCDOE for small purchase transactions.
4
  The NYSED form FS-10 (Proposed Budget for a Federal or State Project) is used by LEAs to propose a budget for
a specific Federal or State project. The form FS-25 (Request for Funds for a Federal or State Project) is used by the
LEAs to request cash drawdown of up to 90 percent of the approved budget for expenditures already made and/or
anticipated cash needs for the next reporting period. The form FS-10F (Final Expenditure Report for a Federal or
State Project) is used by LEAs to report all reimbursable expenditures made by the LEA for an approved grant.
Audit Report
ED-OIG/A02J0009                                                                     Page 4 of 28

Also, because NYSED was still in the process of developing controls to collect, review, and
report ARRA data to ensure they were accurate and complete, it could not provide complete
guidance to its LEAs. Therefore, NYCDOE was still unaware of its responsibilities with regard
to ARRA reporting requirements and did not develop processes to collect and report all required
ARRA data.

According to the Office of Management and Budget’s (OMB) reporting guidance, Implementing
Guidance for the Reports on Use of Funds Pursuant to the American Recovery and Reinvestment
Act of 2009, issued on June 22, 2009, the subrecipients are to (1) initiate appropriate data
collection and reporting procedures to ensure that Section 1512 reporting requirements are met in
a timely and effective manner; (2) implement internal control measures as appropriate to ensure
accurate and complete information; and (3) review subrecipient information for material
omissions and/or significant reporting errors, and make appropriate and timely corrections.

During the October 19, 2009, preliminary exit conference, NYCDOE officials stated that
NYCDOE submitted the required ARRA data on time to meet the September 2009 quarterly
ARRA reporting requirement. NYCDOE indicated that it did not need to modify its systems to
comply with ARRA reporting requirements because it had all required data readily available
through its current systems. However, NYCDOE did not provide any additional information or
documentation to show that it had developed and implemented controls to verify the accuracy
and completeness of reported data before and after submission. In addition, in its comments to
the OIG report entitled New York State System of Internal Control Over American Recovery and
Reinvestment Act Funds, ED-OIG/A02J0006, NYSED indicated that it was in the process of
assessing the results of its initial submission of ARRA reporting data. Therefore, at this time, we
cannot determine the accuracy and completeness of the data submitted by NYCDOE.

The weaknesses we noted above indicated that NYCDOE’s system to collect and report ARRA
data may place NYCDOE at risk of being unable to submit the required ARRA data accurately
and timely.

Recommendations

We recommend that the Assistant Secretary for the Office of Elementary and Secondary
Education (OESE) require NYSED to work with NYCDOE to— 

1.1	   Determine and implement additional measures that are needed to mitigate the risk of
       NYCDOE’s noncompliance with ARRA reporting requirements.

NYSED Comments

NYSED indicated it had continuously shared updated ARRA guidance with all LEAs through
various memos, workshops, and online sessions. Furthermore, it provided direction on how to
gather information on jobs created/saved and the application process for the Education
Stabilization Fund. NYSED stated that it built a web-based data collection tool, which went into
effect on September 21, 2009. NYSED also stated it was prepared to implement all of the report
recommendations. This would be done through the enhanced monitoring/auditing that NYSED
indicated it initiated to meet the requirements of ARRA and its review of the corrective action
plans submitted by each LEA.
Audit Report
ED-OIG/A02J0009                                                                      Page 5 of 28

NYCDOE Comments

NYCDOE agreed with OIG’s conclusion that NYCDOE’s systems of internal control were
generally sufficient to provide reasonable assurance that ARRA funds would be administered in
compliance with applicable laws, regulations, and guidance. However, NYCDOE disagreed
with the areas of concern noted by OIG. NYCDOE stated that OIG did not consider NYCDOE’s
preparations throughout the spring and summer of 2009 to assess and implement enhancement to
its existing systems and procedures. NYCDOE stated that during the summer of 2009, it
retained KPMG LLP to perform a comprehensive readiness assessment of NYCDOE’s existing
systems, controls, and proposed ARRA enhancements. Based on the assessment and
recommendations from KPMG LLP, NYCDOE had designed and implemented significant
enhancements to its systems, internal controls, and procedures to assure its compliance with the
ARRA reporting requirements. Specifically, NYCDOE indicated that it designed and
implemented new survey tools in its Galaxy budgeting system to facilitate the correct scheduling
of ARRA funds by school officials and capture information to ensure ARRA-Title I funds were
budgeted to supplement, not supplant, the programs. NYCDOE also indicated that it
communicated restrictions on the use of ARRA funds and the requirement to effectively
document all ARRA expenditures to all schools and field support offices.

NYCDOE also disputed that it was at risk of being unable to submit accurate and timely data
because (1) it had submitted the first quarterly report on time, and (2) in consultation with New
York City and NYSED officials, KPMG LLP, and Ernst & Young LLP, it had established
thorough procedures for quality assurance, monitoring, and internal auditing of ARRA
expenditures and reporting. In addition, NYCDOE provided a document describing the
procedures its contractor, Ernst & Young LLP, had performed for the first quarterly report and
planned to perform for future ARRA § 1512 reporting.

NYCDOE also stated that it was concerned with OIG’s assertion that it could not determine the
accuracy and completeness of data submitted by NYCDOE and that NYCDOE may be at risk of
not being able to submit the required ARRA data accurately and timely. NYCDOE further stated
that it strongly objected to these statements because OIG did not engage in interviews, perform a
review, or conduct testing on the accuracy and completeness of the data.

NYCDOE indicated that its late submissions of expenditure reports in the past were primarily
related to unliquidated encumbrances and it had since developed an internal report to facilitate
more timely liquidation of open encumbrances. NYCDOE also contested the statement that late
submissions of expenditure reports to NYSED would impact NYCDOE’s or NYSED’s ability to
fully comply with ARRA reporting. NYCDOE stated NYSED reports ARRA expenditures only
after it disburses the funds to LEAs and if it does not submit expenditure reports for funds from
NYSED, NYSED would not have expenditure information to report for NYCDOE, as funds
would not have been disbursed.

OIG Response

We were unable to determine whether NYSED’s web-based data collection tool is sufficient to
address the reporting requirements of ARRA because it was not available during the time of our
fieldwork. NYSED should work with NYCDOE to implement procedures to ensure that
Audit Report
ED-OIG/A02J0009                                                                    Page 6 of 28

NYCDOE submits accurate and complete data timely and in full compliance with all ARRA
reporting requirements.

We recognized that NYCDOE had continued its efforts to meet the ARRA § 1512 reporting
requirements and that it had submitted data for the first quarterly report timely. During the
entrance conference, we explained the objective of our audit including our focus on data quality.
We also indicated that we did not plan to conduct testing during this phase of the audit because
NYCDOE was not yet in receipt of significant ARRA funds for testing. We conducted
interviews with various NYCDOE officials, including the Executive Director of Grants and the
Chief Administrator for Finance, where we asked whether NYCDOE had planned to modify its
systems or implement additional controls to ensure its compliance with the ARRA reporting
requirements including accurate and complete data. However, the responsible NYCDOE
officials stated, during these interviews, that NYCDOE did not plan to modify its systems or
develop additional controls to ensure the accuracy and completeness of ARRA data.

NYCDOE had not communicated or provided documentation during our fieldwork or our
October 19, 2009, preliminary exit conference that it had (1) made enhancements to its systems,
internal controls, and procedures based on the assessments and recommendations from KPMG
LLP and Ernst & Young LLP, and (2) established thorough procedures for quality assurance,
monitoring and internal auditing of ARRA expenditures, and reporting to ensure its compliance
with ARRA reporting requirements. During the preliminary exit conference, OIG inquired again
whether NYCDOE had modified its systems or developed additional controls to ensure the data
submitted were accurate and complete. NYCDOE officials repeatedly stated that the systems did
not require modifications and that NYCDOE did not need additional controls because all
required information was readily available. NYCDOE pointed out that the only thing it was
lacking was guidance from NYSED. NYCDOE did not take advantage of the opportunity at the
time of the preliminary exit to provide additional documentation to show how it planned to
ensure its data were accurate and reliable.

NYCDOE’s Auditor General informed OIG during a teleconference held on December 17, 2009,
after the distribution of the preliminary copy of the final report, that KPMG LLP conducted
monitoring for the first quarterly report while Ernst & Young LLP performed an integrity review
of the § 1512 report and transaction testing. OIG provided NYCDOE another opportunity to
provide additional documentation to support that the work completed for ensuring the accuracy
and completeness of the data, was actually performed. However, NYCDOE did not provide
additional supporting documentation.

In its response, NYCDOE did provide an outline describing the procedures that its contractor,
Ernst & Young LLP, (1) had performed for the first quarterly report and (2) planned to perform
for future ARRA § 1512 reporting. However, we could not validate the work performed by
Ernst & Young LLP because NYCDOE provided only an outline describing the procedures
completed without any supporting source documentation. In addition, we could not determine
whether the procedures described in the response were part of NYCDOE’s policies and
procedures or created specifically for the response to OIG’s report. NYCDOE did not provide
documentation supporting the results of the outlined procedures regarding its § 1512 reporting or
evidence that the procedures were performed.
Audit Report
ED-OIG/A02J0009                                                                      Page 7 of 28

We understand that NYSED, as a prime recipient of the ARRA funds, reports the expenditure
amounts only after it disburses the funds to its LEAs. However, the disbursement of those funds
was based on FS-25 and FS-10F forms submitted by LEAs to claim reimbursements. Given the
heavy emphasis ARRA places on transparency and accountability, if NYCDOE does not submit
its claims for funds to NYSED on a regular and timely basis (advancing its own funds at the time
of expenditure, instead of using ARRA funds at the time of the ARRA expenditure), NYSED
ARRA reporting for expenditure information may not be transparent. Since NYCDOE did not
provide documentation supporting the results of the review performed on the accuracy and
completeness of the data or any evidence that it actually performed the review, there is no
assurance the data submitted for its § 1512 reporting were accurate and complete. Therefore, we
cannot determine the accuracy and completeness of the data submitted by NYCDOE at this time.

FINDING NO. 2: 	 NYCDOE Lacked Certain Written Policies and Procedures for Cash
                 Management and Use of Funds

NYCDOE lacked adequate written policies and procedures in the areas of cash management and
use of funds. Specifically, NYCDOE’s written policies and procedures did not include steps that
require: (1) reconciliation for the receipt and disbursement of grant funds be completed on a
timely basis; (2) reconciliation for the receipt and disbursement of grant funds be reviewed by an
appropriate NYCDOE official; and (3) contract monitoring be performed to ensure goods and
services were received and performed, respectively.

When we examined NYCDOE’s Standard Operating Procedures for General School Funds and
Cash Transactions, and Other Than Personal Service Purchases, we could not locate specific
steps to ensure the controls listed above were carried out. NYCDOE’s Department of Revenue
Operations officials provided us with a verbal explanation of how the claim and cash drawdown
process works at NYCDOE for Federal grants, along with how Federal grant deposits are
accounted for at NYCDOE. However, the NYCDOE officials stated that written policies and
procedures did not exist for these areas.

For contract monitoring, NYCDOE’s Office of Special Education Initiatives officials provided
us with a verbal explanation of how the Related Service Providers contracts were monitored by
the NYCDOE Division of Financial Operations and the Integrated Service Centers. However,
NYCDOE officials stated that written policies and procedures did not exist for the processes
described.

According to OMB Circular A-133 Compliance Supplement (March 2009), Part 6–Internal
Control, control activities are the policies and procedures that help ensure that management’s
directives are carried out. Control activities should include (1) operating policies and procedures
clearly written and communicated, (2) management prohibition against intervention or
overriding established controls, and (3) adequate segregation of duties provided between
performance, review, and recordkeeping of a task.

Also, according to the NYS Comptroller’s Standards for Internal Control in New York State
Government, Part II: Five Components of Internal Control, “Documentation of policies and
procedures is critical to the daily operations of an organization. These documents set forth the
fundamental framework and the underlying methods and processes all employees rely on to do
their jobs.”
Audit Report
ED-OIG/A02J0009                                                                  Page 8 of 28

Without adequate written policies and procedures to clearly communicate required processes, the
staff may not have sufficient guidance to carry out the day to day operations to ensure proper
administration of ARRA funds.

Recommendations

We recommend that the Assistant Secretary for OESE require NYSED to work with NYCDOE
to take immediate actions to implement policies and procedures to ensure— 

2.1	   Reconciliations for the receipt and disbursement of grant funds are completed and
       monitored properly and timely; and

2.2	   Contracts are monitored to ensure goods and services are received and performed
       properly and timely.

NYSED Comments

NYSED provided no specific comments for this finding. However, NYSED stated that, overall,
it was prepared to implement all of the recommendations in the report.

NYCDOE Comments

For Recommendation 2.1, NYCDOE stated that its Department of Revenue Operations provided
a verbal explanation of how the claim and cash drawdown process for Federal grants works and
how they account for Federal grant deposits. NYCDOE further noted that OIG’s concern was
that these procedures were not in writing. NYCDOE stated they provided OIG with a copy of
these written policies and procedures in October 2009, which were developed during the summer
of 2009. NYCDOE further stated that they continue to develop and distribute written policies
and procedures on the use of ARRA funds through School Allocation Memoranda and various
PowerPoint presentations available through the Principals’ Portal. Furthermore, NYCDOE
stated it maintains a Reimbursable Handbook detailing the requirements of its reimbursable
Federal grant funds.

For Recommendation 2.2, NYCDOE agreed to document its general contract management and
monitoring policies and procedures separate from the contract themselves. NYCDOE stated that
its Office of Special Education Initiatives provided a verbal explanation of how the Related
Service Providers contracts were monitored. NYCDOE further noted OIG’s concern was that
these procedures were not in writing. NYCDOE also stated that the contracts executed with the
vendors include reports and documentation that the service provider is required to submit to
NYCDOE officials for contract monitoring and/or audits.

OIG Response

NYCDOE provided us written policies and procedures for the claims and cash drawdown
process in October 2009. However, it was the written policies and procedures it had developed
in August 2008, not during the summer of 2009. NYCDOE did not provide us with the written
policies and procedures it had developed during the summer of 2009. The written policies and
procedures provided to us were not sufficient to address our finding and Recommendation 2.1.
Audit Report
ED-OIG/A02J0009                                                                   Page 9 of 28

The written policies and procedures provided to us in October 2009, titled DOE Standard
Operating Procedure for Formula Grants, did not contain steps to ensure reconciliations for the
receipt and disbursement of grant funds were completed on a timely basis and monitored and
approved by the appropriate NYCDOE officials.

NYCDOE’s proposed corrective action to document its general contract management and
monitoring policies and procedures appears to be appropriate. However, we were unable to
determine whether the documented procedures sufficiently addressed our concerns since we have
not been provided a copy of the new written procedures.
Audit Report
ED-OIG/A02J0009                                                                     Page 10 of 28

PART 2: HARBORFIELDS SYSTEM OF INTERNAL CONTROL OVER ARRA FUNDS

Harborfields has taken certain steps to ensure the proper administration of ARRA funds.
Harborfields planned to use existing systems to account for and track ARRA funds and set up
separate accounting codes for IDEA and SFSF ARRA funding in its accounting system. In
addition, Harborfields used the results of assessments of its policies and procedures performed
by its internal auditor to improve its internal controls. Specifically, it recently implemented
many new procedures based on recommendations from the internal assessments of payroll and
purchasing processes to ensure proper segregation of duties. In addition, Harborfields began
using the Requisition Manager module in its accounting system software, Finance Manager.
Therefore, all purchase orders were created and approved electronically. The claims auditor no
longer prepared them manually, making the process more efficient.

FINDING NO. 3: 	 Harborfields Lacked Progress in Establishing Processes to Ensure
                 Compliance with ARRA Reporting Requirements

Harborfields had implemented certain procedures in anticipation of meeting ARRA § 1512
reporting requirements. Harborfields planned to create separate accounting codes for tracking
ARRA funds in its accounting system and had created a methodology for estimating the number
of jobs saved or created. However, at the time of our fieldwork, Harborfields had not made
sufficient progress in establishing processes and controls to collect, review, and report data in
order to meet all ARRA reporting requirements. Harborfields planned to use the existing
systems and procedures for inputting, processing, and reporting ARRA IDEA and SFSF funds.
Harborfields did not plan to implement additional procedures for collecting and reviewing
ARRA data before submitting to NYSED. Harborfields officials also indicated that the district
has not received sufficient guidance from NYSED as to how and what to report for ARRA funds.

According to OMB reporting guidance, Implementing Guidance for the Reports on Use of Funds
Pursuant to the American Recovery and Reinvestment Act of 2009, issued on June 22, 2009, the
subrecipients are to (1) initiate appropriate data collection and reporting procedures to ensure
that Section 1512 reporting requirements are met in a timely and effective manner; (2)
implement internal control measures as appropriate to ensure accurate and complete information;
and (3) review subrecipient information for material omissions and/or significant reporting
errors, and make appropriate and timely corrections.

Harborfields did not plan to modify its procedures to collect, compile, and report data under
ARRA because Harborfields officials stated that they needed more guidance on ARRA § 1512
reporting requirements. Also, NYSED still had not developed processes and controls to collect,
review, and report ARRA data so that it could provide additional guidance to Harborfields. As a
result, Harborfields may not have a system in place to collect and report accurate and complete
data to meet ARRA reporting requirements.

Although Harborfields submitted the required ARRA data on time to meet the September 2009
quarterly ARRA reporting requirement, during the October 28, 2009, preliminary exit
conference, Harborfields officials stated that they did not develop additional measures to verify
the accuracy and completeness of the data submitted. In addition, in its comments to the OIG
report entitled New York State System of Internal Control Over American Recovery and
Reinvestment Act Funds, ED-OIG/A02J0006, NYSED indicated that it was in the process of
Audit Report
ED-OIG/A02J0009                                                                     Page 11 of 28

assessing the results of its initial submission of ARRA reporting data. Therefore, at this time, we
cannot determine the accuracy and completeness of the data submitted by Harborfields.

Recommendations

We recommend that the Assistant Secretary for OESE require NYSED to work with
Harborfields to—

3.1	   Determine and implement additional measures that are needed to mitigate the risk of
       Harborfields’ noncompliance with ARRA reporting requirements.

NYSED Comments

NYSED indicated that it had continuously shared ARRA guidance with all LEAs through
various memos, workshops, and online sessions. Furthermore, it provided direction on how to
gather information on jobs created/saved and the application process for the Education
Stabilization Fund. Finally, NYSED built a web-based data collection tool, which went into
effect on September 21, 2009. NYSED also stated it was prepared to implement all of the report
recommendations. This would be done through the enhanced monitoring/auditing that NYSED
indicated it initiated to meet the requirements of ARRA and its review of the corrective action
plans submitted by each LEA.

Harborfields Comments

For Recommendation 3.1, Harborfields stated that it adopted and implemented NYSED’s
framework of reporting for school districts based on updated guidance that was issued since the
time of our fieldwork. Therefore, Harborfields believed it met the filing requirements
incorporated within NYSED’s reporting system.

OIG Response

We were unable to determine whether NYSED’s web-based data collection tool is sufficient to
address the reporting requirements of ARRA because it was not available during the time of our
fieldwork. In addition, Harborfields did not indicate procedures that it implemented or plans to
implement to verify the accuracy and completeness of the data submitted. NYSED should work
with Harborfields to implement procedures to ensure that Harborfields submits accurate and
complete data timely and in full compliance with all ARRA reporting requirements.

FINDING NO. 4: 	 Harborfields Lacked Certain Written Policies and Procedures for Cash
                 Management and Use of Funds

Harborfields did not have written policies and procedures for some areas of cash management
and use of ARRA IDEA and SFSF funds. Specifically, Harborfields did not have written
procedures for minimizing the time lapse between receipt and disbursement of Federal funds, for
remitting excess interest earned on Federal cash advances, and for the monitoring of receipts of
Federal funds. Additionally, Harborfields did not have written policies and procedures for its
records management system and for reviewing vendors’ past performance prior to awarding a
contract.
Audit Report
ED-OIG/A02J0009                                                                      Page 12 of 28

Lack of Written Policies and Procedures for Cash Management
Harborfields did not have written procedures to minimize the time lapse between the receipt and
disbursement of Federal funds. Harborfields deposited its Federal funds into interest bearing
accounts. According to Harborfields officials, Harborfields did not request Federal cash
advances. Harborfields should have received a Federal cash advance for its first payment after
NYSED approved its application. According to Harborfields, the first payments were usually
received late in the fall, after funds were expended. However, Harborfields did not have a
written policy that would prevent it from requesting Federal cash advances.

In addition, Harborfields did not have written procedures to ensure that it remitted excess interest
earned on Federal cash advances to ED. Harborfields officials were not aware of the Federal
requirements to remit interest in excess of $100 earned on Federal funds.

Harborfields did not have written procedures that required monitoring of Federal funds received
by Harborfields. According to a Harborfields official, the treasurer was responsible for receiving
funds, preparing a receipt, and transferring the funds to the appropriate Federal fund accounts.
When the treasurer was informed of the wire transfer of funds to Harborfields’ account, the
details of the transfer identifying the source of funds were determined and a receipt was
generated. A copy of the receipt was sent to the appropriate person responsible for the grant and
the funds were transferred into the grant account. However, these procedures were not included
in Harborfields’ Board of Education Policy Manual.

Lack of Written Policies and Procedures for Use of Funds
Harborfields did not have written policies and procedures that clearly documented its internal
controls for records management. Harborfields had an agreement with Western Suffolk Board of
Cooperative Educational Services to store prior years’ hardcopy documents on microfilm. The
records from the most recent years were kept in the Business Office or in the building’s
basement, in a separate storage room, and retrieved by a custodian when requested by the
Business Office staff. In addition, Harborfields’ Board of Education appointed a records
management officer and records access officer but the Board of Education Policy Manual did not
include policies and procedures for organizing, storing, retrieving, or safeguarding Harborfields’
financial records.

Harborfields did not have written policies and procedures for reviewing contractors’ past
performance prior to the awarding of a contract. According to a Harborfields official, the staff
responsible for the program area reviewed past performance of the vendors because they were
more familiar with the history of prior dealings. However, a written policy that required the
review of past performance was not included in Harborfields’ written procurement policies and
procedures.

According to 34 Code of Federal Regulations (C.F.R.) § 80.21(i), “grantees and subgrantees
shall promptly, but at least quarterly, remit interest earned on advances to the Federal agency.
The grantee or subgrantee may keep interest amounts up to $100 per year for administrative
expenses.”

According to OMB Circular A-133 §___. 300, “The auditee shall . . . [m]aintain internal control
over Federal programs that provides reasonable assurance that the auditee is managing Federal
Audit Report
ED-OIG/A02J0009                                                                      Page 13 of 28

awards in compliance with laws, regulations, and the provisions of contracts or grant agreements
that could have a material effect on each of its Federal programs.”

According to OMB Circular A-133 Compliance Supplement (March 2009), Part 6–Internal
Control, control activities are the policies and procedures that help ensure that management’s
directives are carried out. Control activities should include (1) operating policies and procedures
clearly written and communicated and (2) procedures in place to implement changes in laws,
regulations, guidance, and funding agreements affecting Federal awards.

Additionally, according to New York State Comptroller’s Standards for Internal Control in New
York State Government, Part II: Five Components of Internal Control, “Documentation of
policies and procedures is critical to the daily operations of an organization. These documents
set forth the fundamental framework and the underlying methods and processes all employees
rely on to do their jobs.”

According to Harborfields, a policy to minimize the time lapse between receiving and disbursing
Federal funds was not needed because Harborfields did not request cash advancements.
Harborfields’ lack of formal written policies and procedures could result in Harborfields earning
excess interest on Federal funds. In addition, Harborfields was not aware of the Federal
requirement to remit excess interest earned on Federal funds. Because Harborfields was unaware
of the Federal requirement to do so, it was at risk of failing to remit excess interest to ED.

Although Harborfields officials stated that the staff performed the procedures, the Harborfields’
Board of Education Policy Manual lacked written policies and procedures regarding its records
management system, monitoring of receipts, and review of a vendor’s past performance prior to
awarding a contract. Harborfields relied on the experience and training of its staff to perform the
procedures. Without clear and comprehensive written policies and procedures, there is an
increased risk that Federal funds, specifically ARRA funds, will not be administered properly.

Recommendations

We recommend that the Assistant Secretary for OESE require NYSED to work with
Harborfields to implement written policies and procedures to—

4.1 	   Minimize the time lapse between the receipt and disbursement of Federal funds;

4.2 	   Remit excess interest earned on Federal funds to ED;

4.3 	   Require the monitoring of receipt of Federal funds;

4.4 	   Ensure that the records management system is maintained; and

4.5 	   Ensure that contractors’ past performances are reviewed and documented prior to the
        awarding of a contract.
Audit Report
ED-OIG/A02J0009                                                                     Page 14 of 28

NYSED Comments

NYSED provided no specific comments for this finding. However, NYSED stated that, overall,
it was prepared to implement all of the recommendations in the report.

Harborfields Comments

For Recommendations 4.1, 4.2, and 4.3, Harborfields indicated that it will develop additional
procedures to (1) emulate practices by which Federal funds are received, assigned, and
disbursed, (2) monitor interest earned on Federal funds, and (3) ensure Federal funds are used in
accordance with the laws, regulations, and provisions of the Federal program through which the
funds were granted.

For Recommendations 4.4 and 4.5, Harborfields stated that it currently follows the regulations
set by NYSED’s Policy 1120 and its purchasing policy, which incorporated the General
Municipal and Education Laws to ensure the district is operating efficiently and economically.
However, Harborfields stated it would (1) create a companion regulation to outline the processes
used for maintenance and retrieval of the district’s financial records and (2) expand its current
policy to document the appropriate review of vendor’s performance.

OIG Response

Harborfields’ proposed corrective actions appear to be appropriate. However, we were unable to
determine whether the new written procedures sufficiently address our concerns because it was
not available during the time of our fieldwork. Therefore, NYSED should work with
Harborfields to develop and implement these new proposed written policies and procedures.
Audit Report
ED-OIG/A02J0009                                                                       Page 15 of 28

PART 3: KIRYAS JOEL SYSTEM OF INTERNAL CONTROL OVER ARRA FUNDS

Kiryas Joel has taken certain steps toward ensuring the proper administration of ARRA funds.
Kiryas Joel planned to use existing systems to account for and track ARRA funds. It also
planned to set up separate accounting codes for ARRA Title I, IDEA, and SFSF funding in its
accounting system. At the time of our fieldwork, a separate code had already been set up for
IDEA ARRA. In addition, Kiryas Joel planned to forgo the option of using purchase cards to
pay for ARRA expenditures. Kiryas Joel also used a Request for Expenditure form to ensure
that the request and approval of purchases were properly documented. In addition, during an
interim briefing held on October 29, 2009, Kiryas Joel officials were receptive to implementing
many of our recommendations.

FINDING NO. 5: 	 Kiryas Joel Lacked Adequate Controls to Ensure Compliance with
                 ARRA Reporting Requirements

Kiryas Joel did not have sufficient controls over its accounting system to ensure compliance with
ARRA § 1512 reporting requirements. Specifically, Kiryas Joel did not have adequate controls
in place to limit access to its financial accounting system, ------------. Kiryas Joel did not ensure
that its staff was properly approved for the appropriate access level corresponding to their job
responsibilities. Kiryas Joel also had not made sufficient progress in establishing processes and
controls to collect, review, and report data in order to comply with all ARRA reporting
requirements. In addition, Kiryas Joel did not provide training on a regular basis and did not
maintain a user manual for ------------.

Kiryas Joel Lacked Adequate Controls Over System Access That Were Needed to Ensure
Compliance with ARRA Reporting Requirements
Kiryas Joel did not have adequate controls in place to ensure that access to its financial
accounting system, ------------, was limited to the appropriate access level corresponding to
employees’ job responsibilities. Specifically, Kiryas Joel did not document or track the requests
and approvals for system access or any changes to the system access. Kiryas Joel officials stated
that the superintendent verbally approved requests for access or any changes to the access levels
before the computer technician made the changes. Although Kiryas Joel indicated that the
system maintained a history of access level changes, there was no documentation to verify that
Kiryas Joel had determined the changes were within the employees’ job responsibilities and
properly approved by the superintendent.

The current levels of system access had not been updated to reflect changes to employees’ job
responsibilities. This allowed system users to access or modify financial data to which they
should not have had access. Kiryas Joel’s fiscal year (FY) 2007 and FY 2008 Single Audit
reports cited a lack of segregation of duties because the same individual who entered the cash
receipts into ------------ also performed reconciliations to the bank records. In Kiryas Joel’s
corrective action plans for these findings, Kiryas Joel indicated that it adopted a policy and
implemented procedures to segregate the duties of logging, receipting, and reconciling cash
receipts. We were also informed that this individual was no longer posting cash receipts to -----­
------. However, the system access list we received showed that this individual still had full
access to the cash receipt section in ------------ for posting cash receipts to the system. Further,
this individual also had full access to the cash disbursement and the journal entry sections.
Audit Report
ED-OIG/A02J0009                                                                       Page 16 of 28

According to OMB Circular A-133 Compliance Supplement (March 2009), Part 6–Internal
Control, control activities are the policies and procedures that help ensure that management’s
directives are carried out. Control activities should include (1) operating policies and procedures
clearly written and communicated; (2) adequate segregation of duties provided between
performance, review, and recordkeeping of a task; and (3) computer and program controls such
as data entry controls (e.g., edit checks), access controls, and computer general controls and
security controls.

Also, per OMB reporting guidance, Implementing Guidance for the Reports on Use of Funds
Pursuant to the American Recovery and Reinvestment Act of 2009, issued on June 22, 2009, the
subrecipients are to implement internal control measures as appropriate to ensure accurate and
complete information.

Kiryas Joel lacked a system security policy to prevent its employees from gaining unauthorized
access to the district’s financial information through ------------. Therefore, Kiryas Joel did not
have adequate controls over system access to ensure the quality of ARRA reporting data.
Without the proper controls for approving, monitoring, and tracking access to its accounting
system, unauthorized users could access and modify financial data. This may result in the
misuse of ARRA funds and reporting of inaccurate data. During our October 29, 2009, interim
briefing, Kiryas Joel indicated that it recognized the need to improve its controls over access to -­
----------. Specifically, Kiryas Joel provided us with the Request for System Access form it
developed as a result of our recommendation. The form identified the appropriate level of access
for a specified employee and required approval from the superintendent and the treasurer.
Kiryas Joel indicated that it would maintain these forms for each employee.

Kiryas Joel Lacked Adequate Progress in Establishing Processes and Controls That Were
Needed to Ensure Compliance with ARRA Reporting Requirements
Kiryas Joel planned to create separate accounting codes for tracking ARRA funds in its
accounting system in anticipation of meeting ARRA reporting requirements. However, at the
time of our fieldwork, Kiryas Joel had not made sufficient progress in establishing processes and
controls to ensure its readiness in collecting and reporting accurate and complete data to meet all
ARRA reporting requirements. Specifically, Kiryas Joel planned to use its existing procedures
and did not plan to develop additional controls to collect, review, and report required ARRA
data.

In addition, Kiryas Joel had a history of weak controls over the accuracy of financial reporting.
Kiryas Joel officials stated that the FS-10F form was manually filled out by the deputy
superintendent using reports generated from ------------ and approved by the superintendent.
Single Audits for FYs 2007 and 2008 reported that FS-10F forms for five grant programs did not
agree with Kiryas Joel’s general ledger. In its corrective action plan for FY 2008, Kiryas Joel
indicated that the FS-10F forms in question were in conformance with the general ledger and
were filed after reconciliation with the general ledger. As a result, Kiryas Joel did not develop
any additional controls to ensure accurate and complete reporting.

OMB Circular A-133 Compliance Supplement (March 2009), Part 6–Internal Control, states that
the objectives of internal controls pertaining to compliance requirements for Federal programs
include transactions being properly recorded and accounted for to permit the preparation of
reliable financial statements and Federal reports.
Audit Report
ED-OIG/A02J0009                                                                         Page 17 of 28

Also, according to OMB reporting guidance, Implementing Guidance for the Reports on Use of
Funds Pursuant to the American Recovery and Reinvestment Act of 2009, issued on June 22,
2009, subrecipients are to (1) initiate appropriate data collection and reporting procedures to
ensure that Section 1512 reporting requirements are met in a timely and effective manner; and
(2) implement internal control measures as appropriate to ensure accurate and complete
information.

Kiryas Joel did not establish adequate processes and controls to collect, review, and report
accurate and complete data to meet the ARRA reporting requirements because Kiryas Joel
officials stated they believed that (1) they had sufficient controls in place over the reporting of its
financial data, and (2) they needed more guidance on ARRA reporting requirements from
NYSED on how to collect, review, and report other ARRA data elements. Without a system in
place to collect, review, and report all ARRA data, Kiryas Joel may not be ready to collect and
report accurate and reliable data for all ARRA reporting requirements.

During our interim briefing on October 29, 2009, Kiryas Joel officials stated that they had
submitted the required ARRA data on time and met the first quarterly ARRA reporting
requirement in September 2009. Furthermore, Kiryas Joel indicated that based on guidance it
received from NYSED, it did not need to modify its systems to comply with the ARRA reporting
requirements. Subsequent to our October 29, 2009, preliminary exit, Kiryas Joel provided us
with additional documentation indicating that it developed additional controls to verify the
accuracy and completeness of the FS-10F submission to the State. However, these new
procedures would not fully address its lack of verification procedures for the data required under
ARRA § 1512. In addition, in its comments to the OIG report entitled New York State System of
Internal Control Over American Recovery and Reinvestment Act Funds, ED-OIG/A02J0006,
NYSED indicated that it was in the process of assessing the results of its initial submission of
ARRA reporting data. Therefore, at the time of our review, we could not determine the accuracy
and completeness of the data submitted by Kiryas Joel.

Kiryas Joel Had Insufficient Training and Lacked a User Manual for ------------
Kiryas Joel did not provide training on the usage of its accounting software ------------ to ensure
adequate competency of its employees and did not maintain a user manual for ------------. During
interviews with Kiryas Joel officials, we learned that the district employees with access to -------­
---- did not receive training on a regular basis. In addition, Kiryas Joel did not maintain a user
manual that would guide the employees through fiscal operations and the usage of the software.
For example, when we asked for a summary report showing checks generated on a particular
day, the responsible Kiryas Joel official stated that he was unaware as to whether such an option
existed within the system. Furthermore, there was no ------------ user manual available to the
employees to clarify whether this option was available or not. Very often, district employees
relied on the ------------ helpline to resolve systematic issues.

According to OMB A-133 Compliance Supplement (March 2009), Part 6–Internal Control,
control environment sets the tone of the organization influencing the control consciousness of its
people. It is the foundation for all other components of internal control, providing discipline and
structure. The control environment should include the management’s commitment to
compliance ensures that staff receive adequate training to perform their duties and the
management’s support of adequate information and reporting systems.
Audit Report
ED-OIG/A02J0009                                                                    Page 18 of 28

In addition, per NYS Comptroller’s Standards for Internal Control in New York State
Government, Part II: Five Components of Internal Control:

        Control activities are tools - both manual and automated - that help identify,
        prevent or reduce the risks that can impede accomplishment of the organization’s
        objectives. Management should establish control activities that are effective and
        efficient.
                                            . . . . . . .

        Documentation of policies and procedures is critical to the daily operations of an
        organization. These documents set forth the fundamental framework and the
        underlying methods and processes all employees rely on to do their jobs. They
        provide specific direction to and help form the basis for decisions made every day
        by employees. Without this framework of understanding by employees, conflict
        can occur, poor decisions can be made and serious harm can be done to the
        organization’s reputation. Further, the efficiency and effectiveness of operations
        can be adversely affected.

During our interim briefing on October 29, 2009, Kiryas Joel indicated that its employees had
sufficient access to training through the ------------ helpline and its monthly newsletters.
However, Kiryas Joel did not have written policies and procedures to require that employees
receive necessary training to perform their jobs on a regular basis and that the software manual
be made available to them to perform their duties. Without regular training, employees did not
have sufficient guidance and knowledge of the software capabilities and features to carry out day
to day operations needed to administer ARRA funds properly. As a result, Kiryas Joel may be at
risk of processing and reporting inaccurate ARRA data.

Recommendations

We recommend that the Assistant Secretary for OESE require NYSED to ensure that Kiryas
Joel—

5.1 	   Implements the system security policy controls to approve, monitor, and track access to
        its accounting system and ensure that the level of system access coincides with
        employees’ positions and responsibilities;

5.2 	   Determines and implements additional measures that are needed to mitigate the risk of
        Kiryas Joel’s noncompliance with ARRA reporting requirements; and

5.3 	   Provides adequate training to its employees, including updates on policies and
        procedures, programs, and software, on a regular basis.


NYSED Comments

NYSED indicated that it has continuously shared ARRA guidance with all LEAs through various
memos, workshops, and online sessions. Furthermore, it provided direction on how to gather
information on jobs created/saved and the application process for the Education Stabilization
Audit Report
ED-OIG/A02J0009                                                                    Page 19 of 28

Fund. Finally, NYSED built a web-based data collection tool, which went into effect on
September 21, 2009. NYSED also stated it was prepared to implement all of the report
recommendations. This would be done through the enhanced monitoring/auditing that NYSED
indicated it initiated to meet the requirements of ARRA and its review of the corrective action
plans submitted by each LEA.

Kiryas Joel Comments

Kiryas Joel indicated that Recommendation 5.1 had already been implemented. Kiryas Joel
implemented the use of a Request for System Access form to ensure its employees’ access levels
were appropriate. Kiryas Joel also stated that it will revise access levels of those employees
whose responsibilities have and/or will change. Furthermore, it stated that sufficient access
rights will be granted upon approval from the Superintendent and Treasurer. Kiryas Joel also
noted that the level of access of the employee referenced in the OIG report had been modified to
“read only” status.

For Recommendation 5.2, Kiryas Joel stated that further guidance from NYSED is needed on the
collection and reporting of ARRA data.

For Recommendation 5.3, Kiryas Joel stated that it will formalize its ongoing training process for
all of its central office employees by addressing professional development needs during the
Superintendent’s Conference Days programming. Kiryas Joel also pointed out that it obtained
User Manuals for all modules of the ------------ and informed its employees of its availability.
Kiryas Joel noted that new employees receive on-site training from ------------ and will be
provided with access to the ------------ helpline. Additionally, they receive a monthly newsletter
from ------------.

OIG Response

Kiryas Joel’s proposed corrective actions appear to be appropriate and if implemented properly,
these procedures would appear to address our recommendations. NYSED should work with
Kiryas Joel to fully implement procedures ensuring that Kiryas Joel submits accurate and
complete data timely and in full compliance with all ARRA reporting requirements.

FINDING NO. 6: 	 Kiryas Joel Lacked Adequate Controls Over its Payroll Check Process
                 to Ensure that ARRA Funds Are Safeguarded

Kiryas Joel lacked adequate controls to safeguard payroll checks. Kiryas Joel did not have
procedures to track and verify the total number and dollar amount of payroll checks processed,
printed, and distributed to ensure that the payroll checks were safeguarded against unauthorized
use. Based on our observation and interviews, the total number and dollar amount of payroll
checks processed through ------------ were not verified to the total number and dollar amount of
checks printed. Additionally, Kiryas Joel officials indicated that employees were not required to
sign to acknowledge receipt of payroll checks and pay stubs when checks were distributed.

According to OMB Circular A-133 §___. 300, “The auditee shall . . . [m]aintain internal control
over Federal programs that provides reasonable assurance that the auditee is managing Federal
Audit Report
ED-OIG/A02J0009                                                                       Page 20 of 28

awards in compliance with laws, regulations, and the provisions of contracts or grant agreements
that could have a material effect on each of its Federal programs.”

OMB Circular A-133 Compliance Supplement (March 2009), Part 6–Internal Control, states that
the objectives of internal controls pertaining to compliance requirements for Federal programs
include transactions being properly recorded and accounted for to maintain accountability over
assets and funds and other assets being safeguarded against loss from unauthorized use or
disposition.

Kiryas Joel did not have adequate controls over its payroll check process to ensure that ARRA
funds were properly safeguarded because (1) according to Kiryas Joel officials, the tracking of
payroll check distribution was not needed given the small size of the school district, and (2) it did
not have a policy to require reconciliation between the number and dollar amount of checks
processed and printed. Without adequate controls such as verifying the total number and the
total dollar amount of payroll checks processed and printed, and a tracking mechanism for the
distribution of physical checks, Kiryas Joel is at risk of misusing and misplacing payroll checks.
Furthermore, because one of the guiding principles of ARRA is that the funds should be spent
quickly, it significantly increases the risk of checks being misplaced or stolen.

During our interim briefing on October 29, 2009, Kiryas Joel acknowledged the need to improve
controls over the distribution of payroll checks. Specifically, based on our recommendation,
Kiryas Joel developed a Receipt of Payroll form and indicated that it would require each
employee to confirm receipt of payroll checks and pay stubs by signing the payroll run report.
The Receipt of Payroll form requires a building representative’s signature verifying the number
of checks received for that payroll period.

Recommendations

We recommend that the Assistant Secretary for OESE require NYSED to ensure that Kiryas
Joel—

6.1 	   Implements the newly developed procedures to verify payroll checks processed and
        printed are reconciled and the distribution of payroll checks is properly tracked and
        accounted for.

NYSED Comments

NYSED provided no specific comments for this finding. However, NYSED stated that, overall,
it was prepared to implement all of the recommendations in the report.

Kiryas Joel Comments

For Recommendation 6.1, Kiryas Joel stated that it had developed and implemented new
procedures to confirm proper receipt of payroll checks. Specifically, it created two forms to
document the payroll check distribution. The building representatives would sign one form to
confirm the receipt of payroll checks to be disbursed. The second form would be for
documenting the employee’s receipt of the actual check or check stub. Furthermore, the
Audit Report
ED-OIG/A02J0009                                                                                      Page 21 of 28

Treasurer would ensure that the number of checks issued and the dollar amount to be disbursed
are consistent with the Payroll Register prior to signing the checks.

OIG Response

Kiryas Joel’s proposed corrective actions appear to be appropriate and if implemented properly,
these procedures would appear to address our recommendation. However, further testing of the
additional controls might be needed to ensure compliance.

FINDING NO. 7: 	 Kiryas Joel Lacked Sufficient Controls Over Disbursement Process to
                 Ensure that ARRA Funds Are Safeguarded

Kiryas Joel did not have sufficient controls to minimize the risk of funds being improperly
disbursed. Through our observation and interviews, we learned that ------------5 did not contain
the necessary controls to prevent the use of duplicate check numbers when checks were
generated for both payroll and non-payroll expenses. We observed that the same check number
could be used for payments to two different payees in ------------. However, all bank check stock
were pre-numbered and could not be changed. During the interim briefing held on
October 29, 2009, Kiryas Joel indicated its accounts payable clerk attempted to close the
application after we finished our site visit. He stated that he discovered that ------------ prevented
him from posting the duplicate check. Kiryas Joel stated that it believed this control would
sufficiently address OIG’s concerns. However, we noted that the system control would not
prevent the duplicate check number from being printed regardless of whether it could be posted.
The duplicated check could then be cancelled out of the system, leaving no record of it having
been printed.

Given the above situations, there is a great risk that ------------’s disbursement process could
result in discrepancies in books and bank records and in reconciling the bank statement. In
addition, Kiryas Joel’s internal claims auditor only examined and signed off on the disbursement
schedule prior to the checks being generated, and, therefore, would not be able to identify
whether there was a discrepancy in payee, amount, and check number.

According to 34 C.F.R. § 76.702, “A State and a subgrantee shall use fiscal control and fund
accounting procedures that insure proper disbursement of and accounting for Federal funds.”

According to OMB Circular A-133 §___. 300, “The auditee shall . . . [m]aintain internal control
over Federal programs that provides reasonable assurance that the auditee is managing Federal
awards in compliance with laws, regulations, and the provisions of contracts . . .”

In addition, according to OMB Circular A-133 Compliance Supplement (March 2009), Part 6–
Internal Control, control activities are the policies and procedures that help ensure that
management’s directives are carried out. Control activities should include (1) operating policies
and procedures clearly written and communicated; (2) management prohibition against
intervention or overriding established controls; (3) adequate segregation of duties provided
between performance, review, and recordkeeping of a task; and (4) computer and program

5
  According to ------------’s Web site, there were over 300 school districts in NYS that used its system. For more
information on this issue refer to the Other Matters section.
Audit Report
ED-OIG/A02J0009                                                                       Page 22 of 28

controls such as data entry controls (e.g., edit checks), reviews of input and output data, and
computer general controls and security controls.

Kiryas Joel indicated that it did not have sufficient controls over its disbursement process
because it was not aware of the accounting system control deficiency. Without proper controls
over the disbursement process, the same check number could be used for multiple disbursements
without being detected by Kiryas Joel’s existing controls, and it could also cause discrepancies in
Kiryas Joel’s financial records, which may not be reconcilable. As a result, ARRA funds may
not be safeguarded from misuse, and the required ARRA data may not be accurate and timely.
Also, ARRA data may not properly reflect the expenditures related to ARRA funds. Because
our work did not involve testing of transactions, there could be additional weaknesses with the
accounting system controls we did not identify. Subsequent to our October 29, 2009,
preliminary exit, Kiryas Joel provided us with additional documentation indicating that it
developed additional controls, using an Excel formula, to ensure that the same check number is
not used more than once. Kiryas Joel indicated that these new procedures would be included in
its policy manual. If properly implemented, the steps described in its new policy may address
OIG’s concerns.

Recommendations

We recommend that the Assistant Secretary for OESE require NYSED to ensure that Kiryas
Joel—

7.1 	   Implements the check verification procedure controls over the disbursement of funds to
        prevent the same check number from being used for payment to different payees; and

7.2 	   Determines whether other control deficiencies exist in the ------------ accounting system
        and develops controls to compensate the system control deficiencies.

NYSED Comments

NYSED provided no specific comments for this finding. However, NYSED stated that, overall,
it was prepared to implement all of the recommendations in the report.

Kiryas Joel Comments

For Recommendation 7.1, Kiryas Joel stated that it has a number of compensating controls
addressing the use of duplicate check numbers, including reconciliation reports identifying
duplicate checks. Kiryas Joel further indicated that the use of pre-numbered checks will
diminish the risk of fraud or error.

For Recommendation 7.2, Kiryas Joel stated that it contacted the software administrator, --------­
---, seeking its response regarding the issue of the duplicate check numbers. Based on Kiryas
Joel’s inquiry, ------------ agreed to implement a check verification control, eliminating the
possibility of duplicate check numbers by a software update in January 2010.
Audit Report
ED-OIG/A02J0009                                                                       Page 23 of 28

OIG Response

Kiryas Joel’s proposed corrective actions appear to be appropriate and if implemented properly,
these procedures would appear to address our recommendations. However, further testing of the
additional controls might be needed to ensure compliance.


FINDING NO. 8: 	 Kiryas Joel Did Not Update its Policy Manual to Reflect Current
                 Procedures

Kiryas Joel’s written policy manual did not reflect the procedures currently followed. Based on
our interviews with Kiryas Joel officials, we learned that the purchasing and the cash receipt
procedures were not consistent with the procedures described in Kiryas Joel’s policy manual.
Kiryas Joel’s current purchasing procedure required the signed Request for Expenditure forms be
reviewed by the purchasing agent to ensure compliance with the bidding requirements and State
contract availability before the purchasing assistant placed the order and created the
encumbrance in ------------. However, the policy manual indicated that the purchasing assistant
created the encumbrance before the purchasing agent verified that the vendors met the bidding
requirements and State contract availability.

During the interviews with Kiryas Joel officials, we found that in the current cash receipts
process the front desk clerks manually recorded checks received through the mail in a notebook.
Subsequently, the superintendent’s executive assistant prepared the deposit slip for the accounts
payable clerk to deposit at the bank and post to the accounting system, ------------. The
superintendent’s executive assistant also prepared the bank reconciliation. However, the
procedures described in Kiryas Joel’s policy manual were different. The manual stated that the
executive assistant, not the front desk clerks, records the cash receipts manually in a log, then the
clerks prepare the deposit slip.

Further, in its corrective action plan to the FY 2008 Single Audit finding citing lack of
segregation of duties for cash receipts, Kiryas Joel indicated that it adopted a policy and
implemented procedures to segregate the duties of logging, receipting, and reconciling the books
for cash receipts. However, the cash receipt procedure in the policy manual still did not clearly
communicate assigned employee responsibilities to show that the individual who entered the
cash receipt to the books was not the same individual who reconciled the books to the bank.

According to OMB Circular A-133 §___. 300, “The auditee shall . . . [m]aintain internal control
over Federal programs that provides reasonable assurance that the auditee is managing Federal
awards in compliance with laws, regulations, and the provisions of contracts or grant agreements
that could have a material effect on each of its Federal programs.”

According to OMB Circular A-133 Compliance Supplement (March 2009), Part 6–Internal
Control, control activities are the policies and procedures that help ensure that management’s
directives are carried out. Control activities should include (1) operating policies and procedures
clearly written and communicated, and (2) procedures in place to implement changes in laws,
regulations, guidance, and funding agreements affecting Federal awards.
Audit Report
ED-OIG/A02J0009                                                                       Page 24 of 28

Also, according to NYS Comptroller’s Standards for Internal Control in New York State
Government, Part II: Five Components of Internal Control:

        Documentation of policies and procedures is critical to the daily operations of an
        organization. These documents set forth the fundamental framework and the
        underlying methods and processes all employees rely on to do their jobs.
                                        . . . . . . .

        Separation of duties is the division of key tasks and responsibilities among
        various employees and sub-units of an organization. By separating key tasks and
        responsibilities - such as receiving, recording, depositing, securing and
        reconciling assets - management can reduce the risk of error, waste, or wrongful
        acts . . . In cases where tasks cannot be effectively separated, management can
        substitute increased supervision as an alternative control activity that can help
        prevent or reduce these risks.

Kiryas Joel had not amended its policy manual to comply with its corrective action plan to
ensure that staff performed their duties in accordance with updated guidelines. Without an
updated policy manual clearly communicating the practices implemented by Kiryas Joel, the
staff would not have sufficient guidance to properly carry out their job responsibilities to
properly administer ARRA funds. During our interim briefing on October 29, 2009, Kiryas Joel
indicated that it would revise its written policies and procedures based on our recommendations.

Recommendations

We recommend that the Assistant Secretary for OESE require NYSED to ensure that Kiryas
Joel—

8.1 	   Updates its written policy manual to reflect compliance with the corrective actions it
        stated it would implement to resolve the internal control issues cited in its Single Audit
        reports.

NYSED Comments

NYSED provided no specific comments for this finding. However, NYSED stated that, overall,
it was prepared to implement all of the recommendations in the report.

Kiryas Joel Comments

For Recommendation 8.1, Kiryas Joel stated that it had amended its policy and procedures for
purchasing and cash receipts. In addition, Kiryas Joel indicated that these procedures were fully
implemented.

OIG Response

Kiryas Joel’s proposed corrective actions appear to be appropriate and if implemented properly
these procedures would appear to address our recommendation. However, further testing of the
additional controls might be needed to ensure compliance.
Audit Report
ED-OIG/A02J0009                                                                   Page 25 of 28


                                    OTHER MATTERS

As noted in Finding No. 7, entitled Kiryas Joel Lacked Sufficient Controls Over Disbursement
Process to Ensure that ARRA Funds Are Safeguarded, we found that Kiryas Joel’s accounting
software, ------------, did not have adequate controls to prevent the use of duplicate check
numbers when checks were generated for both payroll and non-payroll expenses. The same
check number could be used for payments to two different payees in ------------. In addition,
according to ------------’s Web site, this software is used by more than 300 LEAs throughout
NYS. Because of the extensive use of ------------, the problems with this system could be a more
pervasive State-wide issue--especially if compensating controls are not implemented by LEAs
using the system. We suggest that NYSED advise the LEAs across the NYS using ------------
about the system’s deficiency.

NYSED Comments

NYSED provided no specific comments for this issue. However, NYSED stated that, overall, it
was prepared to implement all of the recommendations in the report.

OIG Response

We are pleased that NYSED stated that it was prepared to implement all of the recommendations
in the report. In addition, we believe that NYSED should follow our suggestion to advise the
LEAs across the NYS using ------------ about the system’s deficiency.
Audit Report
ED-OIG/A02J0009                                                                                   Page 26 of 28

                                             BACKGROUND

According to the Grant Award Notifications, NYSED was the prime recipient of Title I and
IDEA funds received through ARRA.6 The NYS Governor’s Office was the prime recipient of
SFSF funds. Title I and IDEA grant funds are administered by NYSED for NYS. NYSED was
allocated $1.666 billion for Title I and IDEA through ARRA (see Table 1). On April 1, 2009,
ED made available 50 percent of the funds for New York’s Title I and IDEA authorized through
ARRA. New York appropriated ARRA funding for Title I and IDEA over the 2009-2010 and
2010-2011 school years. As of September 10, 2009, NYSED had not drawn down any funds.

                                 Table 1. ARRA Allocations to NYSED
                                                       Total Allocated
                                                         (in millions)
                     Title I                                 $907
                     IDEA                                     759
                     Total                                  $1,666

The NYS Governor’s Office was allocated another $3 billion for SFSF (see Table 2). Of the $3
billion, 81.8 percent of its allocation was awarded under the Education Stabilization funds and
the remaining 18.2 percent was awarded under the Government Services Fund. NYS’s
Application for Initial Funding Under the SFSF Program was approved on May 11, 2009.
Within 2 weeks of this approval, ED made available 67 percent of the New York’s total SFSF
allocation. As of September 10, 2009, NYS had drawn down $49,900,000 in SFSF Education
Stabilization funds.

                     Table 2. ARRA Allocations to NYS Governor’s Office
                                                  Total Allocated
                                                   (in millions)
                    Education Stabilization           $2,469
                    Government Services                  549
                    Total SFSF                        $3,018

NYCDOE, Kiryas Joel, and Harborfields were subrecipients of Title I, IDEA, and the Education
Stabilization portion of the SFSF funds received through ARRA. 7 In order to receive the funds,
the LEAs were required to submit grant applications to NYSED requesting the funds. Upon
approval of the LEA applications, NYSED would make the Title I, IDEA, and SFSF Education
Stabilization funds available for disbursement to the LEAs. For the 2009-2010 school year,
NYCDOE was allocated more than $1.292 billion for Title I, IDEA, and SFSF Education
Stabilization funds through ARRA, Kiryas Joel more than $5.26 million, and Harborfields about
$1.92 million (see Table 3).



6
  NYSED administers Vocational Rehabilitation funds at the State level. The LEAs did not participate in Vocational
Rehabilitation program, and, therefore, were not awarded any of these funds. We reviewed controls at NYSED
related to Vocational Rehabilitation as part of our State-level work.
7
  Education Stabilization portion of the SFSF funds to be used to restore the level of State support for elementary
and secondary education in FY 2010 will be administered through NYSED.
Audit Report
ED-OIG/A02J0009                                                                                 Page 27 of 28

            Table 3. ARRA Allocations Available to LEAs for Project Year 2009-2010
                                     NYCDOE            Kiryas Joel        Harborfields8
    Title I                          $707,991,789       $4,560,564         $        0
    IDEA                              158,301,679          539,542            389,157
    SFSF Education Stabilization      426,188,549          160,756          1,528,924
    Total                          $1,292,482,017       $5,260,862         $1,918,081


                                 SCOPE AND METHODOLOGY

Our review consisted of an assessment of the designed system of internal controls that
NYCDOE, Kiryas Joel, and Harborfields planned, at the time of our field work, to use in
administering funds received under ARRA for the Title I, IDEA, and SFSF programs. For the
SFSF program, we focused our review on the SFSF funds to be administered by NYSED. We
reviewed the LEA-level controls related to data quality, cash management, and use of funds.

Our review was limited to assessing the design of the internal controls. Given that much of the
ARRA funding had not yet reached the States and localities, we could not validate nor test the
accuracy of the statements made by officials regarding their accounting and tracking systems.
Also, during and subsequent to our fieldwork, the LEAs were continuing the process of
designing and implementing internal controls for administering ARRA funds. Thus, the plans
and processes reviewed during our audit may be modified or not implemented as designed.
Also, since neither NYSED nor the NYS Governor’s Office had disbursed ARRA funds at the
time of our review, we may not have been aware of unique factors related to the administration
of ARRA funds during our assessment of the design of internal controls.

To achieve our audit objective, we judgmentally selected NYCDOE, Kiryas Joel, and
Harborfields to include in our review of NYS LEA-level systems of internal control over ARRA
funds. Using 2008-2009 school year data we combined Title I, Parts A and D, and IDEA
information for 820 NYS LEAs. We then stratified the LEA-data into three strata—large,
medium, and small—based on specific amounts. The large stratum consisted of one LEA that
received funding greater than $100 million. The medium stratum consisted of 198 LEAs that
received funding between $1 million and $99.99 million. The small stratum consisted of 621
LEAs that received funding between $0 and $999,999. We judgmentally selected from the large
stratum NYCDOE, from the medium stratum Kiryas Joel, and from the small stratum
Harborfields. In our selection, we considered information received from NYSED, ED OIG
Investigation Services, the ED OIG Hotline, and Single Audit reports.




8
  NYSED did not allocate any Title I ARRA funds to Harborfields for the 2009-2010 school year. Harborfields did
receive $125,758 of regular Title I funds.
Audit Report
ED-OIG/A02J0009                                                                              Page 28 of 28

To gain an understanding and assess the designed system of ARRA internal controls that
NYCDOE, Kiryas Joel, and Harborfields planned at the time of our work, we:

      Reviewed prior Single Audit reports;9
      Identified ARRA funds allocated to NYCDOE, Kiryas Joel, and Harborfields for Title I,
       IDEA, and SFSF;
     Interviewed NYCDOE, Kiryas Joel, and Harborfields officials regarding controls for data
       quality, cash management, and use of funds for Title I, IDEA, and SFSF;
     Observed certain processes and operations at one selected NYCDOE school, Kiryas Joel,
       and Harborfields;
    	 Obtained and reviewed NYCDOE’s, Kiryas Joel’s, and Harborfields’ available written
       policies and procedures related to data quality, cash management, and use of funds for
       Title I, IDEA, and SFSF;
     Obtained and reviewed FY 2007 and FY 2008 Internal Audits of Schools of NYCDOE;
       and
     Obtained and reviewed Harborfields’ Internal Audit Reports on Personnel and Payroll
       Processing, and Procurement and Claims Processing.

We conducted our work at NYCDOE, Kiryas Joel, and Harborfields. We discussed the results of
our review and recommendations with NYCDOE on October 19, 2009; with Kiryas Joel on
October 29, 2009; and with Harborfields on October 28, 2009.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.




9
 We reviewed the Government Accountability Office, the New York Office of the State Comptroller, the New York
State Office of Inspector General, and NYSED’s Office of Audit Services Web sites and found no reports issued
pertaining to our review of NYS LEAs Systems of Internal Control Over ARRA funds.
                                              Attachment 1



                 THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY
                 12234

                 DEPUTY COMMISSIONER FOR OPERATIONS
                  AND MANAGEMENT SERVICES
                 Tel. (518) 474-2547

                 Fax (518) 473-2827

                 E-mail: tsavo@mail.nysed.gov




                                                      December 23, 2009


Mr. Daniel Schultz
Regional Inspector General
U.S. Department of Education
32 Old Slip – 26th Floor
New York, NY 10005

Dear Mr. Schultz:

       I am writing in response to the preliminary final audit report on New York State Local
Educational Agencies Systems of Internal Control Over American Recovery and Reinvestment Act Funds
(ED-OIG/A02J0009).

General Comments

         We have processes in place to ensure LEAs fully comply with the recommendations contained in
this audit. Two of the three districts visited as part of the OIG audit have been identified on our ARRA
external risk assessment; as such, they will be subject to enhanced monitoring or auditing. In addition,
Section 170.12 of the Regulations of the Commissioner of Education requires each school district
superintendent to prepare and file with the Commissioner a corrective action plan. The New York State
Education Department (NYSED) will ensure these three districts submit a corrective action plan related
to this audit report and will follow-up on implementation.

       As you know, reporting requirements were being developed at the same time the Department and
LEAs were preparing for ARRA reporting. From our perspective, the comments that cause the most
concern in the report are those that link the lack of systems to collect and report data to the risk of
inaccurate data. As discussed below, NYSED was providing guidance as we received it.

Specific Comments on Findings

       Finding No. 1 - The report indicates New York City Department of Education (NYCDOE) has a
long history of being late in submitting fiscal forms to NYSED. Please note we have seen significant
improvement in the timeliness of reporting over the last several years.
        Findings No. 1, 3, and 5 - The report discusses the adequacy of guidance received from NYSED
regarding ARRA reporting. As you know, the federal Office of Management and Budget released
reporting templates, data definitions, and guidance on job estimates in August 2009. The U.S.
Department of Education (ED) released additional guidance on job estimates in September 2009. As
soon as the Department received information, guidance was provided to the LEAs.

         NYSED officials shared updated guidance on ARRA requirements, including warning school
districts that they would need to report job estimates, in guidance memos released on February 27, March
9, March 31, April 1, April 2, April 10, April 22, June 3, June 23, and June 29, 2009. A NYSED official
met with 630 school officials at the New York State Association of School Business Officials summer
workshop on July 11, 2009 and shared the guidance that was available at that time.

        In addition, NYSED built a web-based data collection tool to collect information that was not
available from other NYSED systems. This tool gathered information on jobs saved and created for the
Education Stabilization Fund application. The tool was expanded to collect data required for Recovery
Act reporting and this aspect was put in production on September 21, 2009. Reports were requested from
ARRA sub-recipients by October 1, 2009, a deadline which was extended to October 6, 2009. NYSED
officials prepared step-by-step instructions for reporting and presented a webcast describing the reporting
process on September 18, 2009. Online question and answer sessions were conducted from September
22 through September 25, 2009. Staff were available by phone and email and fielded hundreds of
questions daily. Approximately 3,500 persons accessed the online sessions.

Response to Recommendations

       We will await the ED’s final determination; however, we are prepared to implement all of the
recommendations. We believe this can be accomplished through our enhanced monitoring/auditing that
we have initiated to meet the accountability and transparency requirements of ARRA, as well as our
review of the corrective action plans submitted by each LEA.

       I have enclosed responses from the three LEAs referenced in the audit. If you have any questions
or would like to discuss our response, please contact James Conway at (518) 473-4516.

                                                     Sincerely,

                                                     /s/

                                                     Theresa E. Savo

Enclosures
c:     	Timothy Gilchrist
       Duffy Palmer
       Commissioner David Steiner
       John King
       James Conway
       Charles Szuberla
Department
 epartment of
           of
Education
Education
.J<>teI1., "'"
...        KIeon
""--
"'""""




December 22,
         22, 2009

Theresa E.
        E. Savo
Deputy Commissioner for Operations
New York.
      York State Education
                 Education Department
State
State Education
      Education Building
                 Bui lding
Albany, New York
              York 12234
                     12234

Re:
Re: ED-OIG/A02JOOO9
    ED-OIG/A02JOOO9

Dear Deputy Commissioner Savo:
                         Savo:

This letter constitutes the
                        the New York City Department of
                                                     of Education's (NYCDOE)
response to the United
                United States Department of Education
                                            Education Office of
                                                             of Inspector General's
(ED-OIG) December 2009 draft report entitled New
                                             New York
                                                 York Slate
                                                      Slate Local Educational
                                                                  Educational
Agencies Systems of llZtemal
                    lmernnl Control
                             Con trol Ol'er American
                                            American Recovery and
                                                              ann ReilZl'estment
                                                                  ReilZl'estment Act
                                                                                 Act
Funds (ED-OIGIA02JOOO9) (Report).
Funds (ED-OlGIA02JOOO9) (Report).

We are pleased that the ED-OIG
                        ED-OIG has
                               has concluded that
                                             that NYCDOE had designed systems of
control generally sufficient to provide reasonable
                                        reasonable assurance that American
                                                                  American Recovery and
Reinvestment Act (ARRA) funds
                        funds would be administered in compliance with applicable
laws,
laws, regulations and guidance.

However, we are very concerned that the ED-OIG's Report, which is based entirely on
field
fie ld work conducted in the spring and summer of 2009, prior to the start
                                                                     start of the
                                                                              the 2009-
2010
20 10 school year, prior to the issuance of
                                         of key
                                            key guidance from
                                                         from the United
                                                                  United States
Department
Department of
           of Education
              Education (ED) and the United
                                     United States Office of
                                                          of Management
                                                             Management and Budget
(OMB) on
      on the expectations and methodology for
                                          for ARRA Section 1512
                                                           1512 reporting, and well
                                                                               well
prior to the October 1,2009
                     1,2009 deadline for submitting data in accordance with ARRA
                                                                            ARRA
Section
Section 1512
        1512 reporting requirements.
                       requirements, presents
                                     presents to the public
                                                     public an
                                                            an incomplete and inaccurate
                                                                              inaccurate
picture of
        of the NYCDOE's robust
                        robust system of
                                      of internal controls to assure compliance in the
NYCDOE's administration
         administration and reporting of
                                      of ARRA
                                         ARRA funds,
                                              funds, as well as to identify and
mitigate instances of
                   of fraud,
                      fraud, waste and abuse.    The Report also fails to reflect the
NYCDOE's extensive preparations throughout the spring and summer 10         to assess ilS
                                                                                      its
existing systems and procedures and to develop and implement significant
                                                             signi fi cant enhancements
to those systems and procedures to assure compliance with ARRA requirements for both



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                                                                                9:JS-5.'58
                                                             I
fund administration and reponing, as well as to effectively identify and mitigate instances
of error, fraud, waste and abuse.

Response to Findi ng No. I:
            Finding      I:

NYCDOE's Robust Existing
                Eristing Systems and Procedures
                                     Procedures Were Significantly Enhanced
                                                                   EnluJnced to
                  with ARRA Erpenditure
Assure Compliance with      Expenditure and Reporting Requirements.


10 describing the NYCDOE's
In                NYCDOE' s system of internal
                                      internal controls over ARRA
                                                             ARRA funds.
                                                                  funds, the Repol'!
                                                                             Report
highlights some of the key steps that the NYCDOE
                                          NYCDOE had, as of the
                                                            the summer, already set in
place for the coming school year to assure compliance with ARRA expenditure and
                                                                            an<!
reponing requirements. Accordingly, we are perplexed that the Repon
reporting                                                     Report subsequently
states that the "NYCDOE planned to use its existing
                                           CJl. isting systems and procedures, without
modification, to collect, compile and repon
modification.                         report on the data required
                                                         required under ARRA." In
                                                                               10 fact.
                                                                                  fact.
the NYCDOE.
    NYCDOE, in coordination with New York State Education Department (NYSED)
and State and City budget officials, and based on assessments and recommendations from
                                                                                  from
two   independent
      independent     accounting         firms.
                                         fi nns,     KPMG
                                                     KPMG          and     Ernst &
                                                                                 &         Young,
                                                                                           Young.        designed and
                                                                                                                  and
implemented significant enhancements to the NYCDOE's already robust system
                                                                    system of
internal controls.


As noted
As noted in the Repon,
                Report, the
                        the NYCDOE created distinct accounting codes for each grant
under which
      which the NYCDOE anticipated receiving any ARRA funds.
                                                      funds, including, but not
                                                                            not
limited to, ARRA grants under Title I,
                                    I, IDEA and SFSF. However,
                                                      However, the Repon
                                                                   Report does not
explain the
        the degree of transparency. in the form of detailed data at both the enterprise and
                      transparency, in
transactional levels in the budgeting.
                            budgeting, encumbrance and expenditure of ARRA
                                                                      ARRA funds,
                                                                           funds,
which results from such
                   such accounting, thereby allowing the NYCDOE to effectively and
efficiently pun
            pull any and all data required for ARRA reponing.
                                                    reporting.

Moreover, beyond establishing distinct account
                                       account codes for the ARRA grants, the
NYCDQE enhanced its existing systems and processes in several other ways to assure
NYCDOE
that it could effectively assess and demonstrate the accuracy of its reponed
                                                                     reported data and
document its compliance with all
                             all grant requirements. In
                                                     In summer 2009, the independent
accounting firm
           fum of KPMG was retained by New
                                       New York City to perform a comprehensive
readiness assessment of the NYCDOE's existing systems, controls and proposed ARRA
enhancements.     KPMG issued its findings and recommendations for modifications and
additional enhancements,
           enhancements. and the NYCDOE dctailed
                                        detailed its
                                                 its plans to implement
                                                              implement those
recommendations to address the risks thaI
                                     that had been flagged.
                                                   flagged . Informed
                                                             Informed by this readiness
assessment and the
assessment     the available federal
                             fcderal and state ARRA guidance, the NYCDOE set up
filter rules in its Galaxy budgeting
                           budgeting system to
                                            to control how
                                                       how ARRA grant funds cou
                                                                            could
                                                                                ld be
budgeted.
budgeted, and blocks
              blocks in
                     in its FAMIS
                            FAMlS accounting system to control how ARRA grant
                                                                        grant funds
could be encumbered and spent. For example,
                                   example. schools were required to budget ARRA­
                                                                            ARRA­
SFSF only on teachers, and were required
                                required to
                                         to budget
                                            budget ARRA-IDEA
                                                   ARRA-IDEA funds
                                                             funds only for
collaborative team-teaching classrooms, and limiled
                                            limited other-than-personal-service (OTPS)
spending of ARRA-Title
            ARRA-Title II funds to specific contracted vendors who signed a contract
addendum with
         with the NYCDOE committing them to provide all data required for ARRA
reponing
reporting and maintain
              maimain all
                       all records required
                                   requ ired to demonstrate ARRA and grant compliance.

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                                                                                         New Vorl<
                                                                                             York 11201
                                                                                                   11201 

                                    T9Iephone:
                                    T&Iephone: (718)
                                               (718) 935-2600 .. fax: (718)
                                                                       (718) 935·5458
                                                                               935·5458 

                                                          2
Schools were also precluded from making any ARRA expenditures with purchasing
cards.

Then. the NYCDOE communicated the restrictions on the use of and the requirements for               for
the effective documentation of     of all ARRA funds to all   all schools and to the field support
offices
offi ces that work with directly with the schools on compliance, operational and fiscal         fi scal
matters. TIlese
           1llcse COllll
                       u ll nications included
                  communications       includ","<l thc SdK)ul Allocatiun
                                                   the SdlOUI             MCllloramia notcd
                                                               Allocation Memoranda      nuted in
                                                                                               ill tilt:
                                                                                                    tilt:
Repon.
Repon, as well as an ARRA Internal Controls PowerPoint  PowerPoi nt presentation diSlributed
                                                                                   di stributed to all
schools through our Principals'
                            Principals' Ponal.
                                          Ponal. Additionally. the NYCDOE designed and
implemented new survey tools in its Galaxy budgeting system     system that facilitated the schools'
correct scheduling of
                    of ARRA funds and captured informationinfonnation to assure that
                                                                                 that ARRA-Title II
funds were budgeted to supplement. not supplant.   supplant, the programs that the schools would
have provided in the absence of    of those funds.


The Report Erroneously
           E"oneously Makes Assumptions About NYCDOE's Capacity for
                                                                for Timely
                                                                    Timely
ARRA Reporting Based
     Reporting Based on Prior Findings Relating 10
                                                to the Submission of Budgel
                                                                     Budget and
Expenditure Forms.
            Forms.

The Report erroneously links past instances of
                                            of late submissions by NYCDOE of
                                                                          of certain
expenditure
expendilUre reports with
                    with ARRA reporting. as the issues that resulted in
                                                                     in the fonner
                                                                            former will
                                                                                   will
have
have no impact on the latter.
                      laller. Moreover. the Report repeats the faulty assertion.
                                                                      assertio n, refuted in
                                                                                          in
detail
detail above.
       above, that the
                   the NYCOOE
                       NYCDOE planned no
                                      no modifications to its systems and procedures
to justify the linkage.  As described above and below. NYCDOE has significantly
enhanced its systems.
              systems, procedures and other internal controls to facilitate timely and
accurate ARRA
          ARRA reporting.

The NYCDOE's
      NYCDOE' s prior year late submissions of FS-IO. FS- JO. FS-25
                                                               FS-2S and FS-IOF
                                                                            FS- IOF fonns
                                                                                     forms to
NYSED, cited in the Report.
NYSEO,                  Report, primarily relate to a specific issue, namely, encumbrances
with vendors not liquidated prior to claiming deadlines. That issue was raised with
NYSED
NYSED before the deadlines, and NYSED expressed a preference that NYCDOE submit
the
the affected reports late
                     late rather than
                                 than submit an incomplete claim only to amend itit after the
encumbrance liquidations. NYCDOE has since developed an internal  internal report
                                                                           report to facilitate
                                                                                     facilitate
more timely liquidation ofof open encumbrances.

However.
However, even if
              if this issue
                      iss ue of
                             of delayed encumbrance liquidations were to recur, it would
not impact NYCDOE's or NYSED's  ability to comply full
                       NYSED' s ability           fullyy with ARRA Section 1512
                                                                           15 12
reporting
reponing deadlines. as evidenced most clearly by the NYCDOE's
                                                     NYCDOE' s timely submission of
                                                                                 of
its first quarter ARRA
                  ARRA reponing data. The reason there is no
                                                          no basis to link the
                                                                           the two issues
is that NYSED, as the prime recipient of
                                      of the ARRA grant
                                                  grant funds.
                                                        fund s. is reporting the
expenditure of ARRA
               ARRA funds
                    fund s onJy after they have been disbursed
                           only after                disbursed to LEAs,
                                                                  LEAs, and those
                                                                            those
funds
fund s are only being disbursed to LEAs after those
                                   LEAs after those LEAs
                                                    LEAs have submitted their claims and
associated expenditure
           expenditure reports and those claims have
                                                have been reviewed and approved by
NYSED.
NYSED. Accordingly.
       Accordingly, if
                    if the
                       the NYCDOE
                           NYCDOE were
                                  were to be late in its
                                                     its submission of
                                                                    of expenditure
reports in support of ARRA claims.
                   of ARRA claims, there would be no disbursement of ARRA funds to
report.
report. And
        And the expenditure data for NYSEO's
                                     NYSED's ARRA reporting
                                                  reponing is therefore drawn from


                                            65 Court             "' FJoor . Brooklyn. New Yor1o; 11201
               Offic
               Officee of
                       01 ALKilor
                          AUlitor General.
                                  General . 65 Court SlfOOl.
                                                     Stroot . 11
                                                              11"'  FJoor. BtookIyn. New yor;,; 11201 

                                  Telephone:
                                  Telephone: (718) 935-2600 .. Fax: (718)
                                             (718) 935-2600           (718) 935-5458
                                                                             935·5458 

                                                         3
                                                         3
NYSEO's own accounting systems: it has requested no expenditure data from its
                                                                          ils sub­
                                                                              sub­
recipient
recipienl LEAs for the purpose of ARRA reponing.

NYCDOE
NYCDOE Receilled the Guidance It Needed from
                                        from ED and NYSED
                                                    NYSED to Meet ARRA
Reporting
Reporting Requirements and Timely
                           Timely Submilted All
                                            All Required Data.

The Repon  curre!..:tly flutes
    Reporll:Orrel:tly           that the NYCDOE had not.
                        fl Otes Ihal                not. as of the time of the ED-OIG'j
                                                                               ED-OIG's
fieldwork
fieldwork in June and July 2009, received sufficient guidance on precisely what data it
                      July 2009.
would need to report,
              repon, to whom, and in what
                                     what format.
                                          fonnal, to enable it to complete its
preparations for ARRA reponing, particularly with respect to reponing
                 ARRA reporting,                             reporting its estimate of
jobs
jobs saved or created because of
                              of the availability of
                                                  of ARRA funds.
                                                          funds. However,
                                                                 However. by creating
distinct
distinct accounting codes for each ARRA grant source. NYCDOE assured that
                                                                     that it would
be able to draw any data from its budgeting,
                                  budgeting. payroll
                                             payroll and accounting systems that
                                                                            that mighl
                                                                                 might
ultimately be required for ARRA
                           ARRA reponing.
                                reporting. When NYCDOE
                                                NYCOOE received the final guidance
                                                                          gu idance
it needed from
          from ED and NYSED in September 2009.
                                         2009, it was fully prepared 10 draw,
                                                                     to draw.
organize and submit all required data on time to meel
                                                 meet the October J. 2009 quarterly
                                                                  J, 2009
ARRA reporting deadline,
ARRA           deadline.


Throughout July.
           July, August and September 2009,
                                      2009, NYCDOE
                                            NYCOOE held conference cal
                                                                   calls
                                                                       ls with
NYSED
NYSEO at least
         least once per week to discuss both agencies'
                                             agencies' ongoing preparations for ARRA
                                                                                ARRA
administration and reponing.
                   reporting, to identify
                                 identify requirements and procedures about which
clarifying guidance
           gu idance was still
                         st ill needed,
                                needed. and                  10 coordinate on the development of
                                                             10                               of the
reponing
reporting tools and processes that would be used for the NYSED's collection. review and
                                                         NYSED's collection,
reponing of
         of all required ARRA
                         ARRA data.                 In September 2009,
                                                    In           2009. NYSED informed its LEAs
that
thai expenditure data for ARRA reponing would be based on claims paid by NYSED
                      for ARRA                                           NYSEO to
the LEAs. Later Ihat
                that month, NYSED rolled-out its
                                             ils newly-designed online reponing tool
for LEAs to submit all data required for ARRA
                                         ARRA reponing
                                              reporting and held a webcast to train
LEAs precisely what data was required and how
                                          how itit was to be submitted.

A1so in
AJso in September 2009.
                  2009, ED issued Clarifying
                                  Clarifying Guidance 0"
                                                      on American Reinvestmelll
                                                                  Reinvestment and
Recovery Act of 2009.
Recovery        2009, Reporting on Jobs Cremiofl
                                        Creation Estimates by Recipients.
                                                              Recipients. which
ultimately provided the basis for the methodology that
                                                  Ihal the NYCDOE      to calculate ils
                                                           NYCDQE used 10           its
jobs saved estimate. To funher ensure that
                                      that NYCDOE's methodology comported
                                                                componed with the
federal
federal guidance. a conference call was held in September 2009 with representatives from
                                                September 2009
NYCDOE. NYSED and ED 10
                     to discuss the NYCDOE's
                                    NYCOOE's methodology
                                             methodology and the basis
therefore. ED representatives agreed that the proposed methodology was consonant with
the guidance. but noted that the NYSED.
                                     NYSEO. as prime recipient.
                                                        recipient. was responsible for
detennining the methodology its subrecipienls
                                 subrecipients may or must use for ARRA
                                               mayor               ARRA jobs reponing.
                                                                             reporting.
NYCDOE
NYCDQE subsequently
           subsequent ly submitted its proposed methodology  to NYSED
                                                methcxlology 10  NYSEO in writing.
                                                                          writing, and
thai
that methodology was approved by NYSED prior to the reponing deadline.

Accordingly,
Accordingly, NYCDOE
             NYCDOE was fully prepared 10 meel and did meet the deadline for
                                       to meet
submission of its ARRA
                  ARRA data for first
                                first quarter reponing,
                                              reponing. and is fully prepared 10
                                                                              to meel the
                                                                                 meetlhe
deadlines for all future quarters.




              0tHee
              0tIIee 01
                     01 AudUor
                        AlJdItOf Gooernl-
                                 General- 65
                                          65 Court
                                              Coort Stree     11-" Floo
                                                    Streett__ 11   Floorr __ Brooklyn
                                                                             Brooklyn,, N_
                                                                                        New York
                                                                                            York 11201
                                                                                                 11201
                                 Telephone:
                                 Telephone: (718)
                                            (718) 935-2600
                                                  935-2600 __ Fax:   (718) 935-S458
                                                               Fax: (718)     935-5458
                                                         4
                                                         4
NYCDOE Established
       Establ
            i
            shed Thorough
                   Thorough Procedures for
                                       for Quality Assurance, Monitoring and
Internal Auditing of
Internal          of ARRA Expenditures and Reporting,
                                           Reporting.

 In October 2009. the ED-OIG provided NYCOOE
                                      NYCOOE with two findings
                                                      findings sheets and held a
 preliminary exit co
                  conference
                    nference with NYCDOE officials to discuss those preliminary draft
 findings.
 findings. The ED-OIG
               ED-CIG had presented its finding
                                        finding that there
                                                     lhere was a risk: NYCOOE
                                                                       NYCOOE would
 not be ablt: to
 nol be       to suub
                    bmi    ilS required ARRA data on time. NYCDOE
                      mitt its                             NYCDOE infonned the ED-OIG
 team that
      that it had, in
                   in fact,
                      fact, met the data submission deadline for first quarter reporting. In
                                                                                          In
 reviewing the ED-OIG's draft report issued a month and a half later,
                                                               later. NYCDOE
                                                                      NYCOOE was
distressed to find that while the ED-OIG acknowledged the timely submission. it
 somehow felt
         felt the need to diminish the NYCOOE's timely data submission by asserting
 that the ED-OIG "cannot detennine
                         determine the
                                   lhe accuracy and completeness of
                                                                 of the data submitted
 by NYCDOE" and that NYCDOE
                     NYCOOE may be "at risk of being unable to submit the required
ARRA data accura
ARRA      accurately
                 tely and timely".
                          timely",

 Since the ED-OIG's
           ED-ClO's engaged in no interviews
                                  imelViews and performed no reviews or testing on the
question of
         of the accuracy and completeness of
                                          of the data
                                                 data submil!ed
                                                      submitted by NYCDOE, we
 strongly object to the
                    the ED-OIG's
                        ED-OIO's inclusion
                                 inclusion of such baseless statements in a public
document.


In fact.
In foct, the
         the NYCDOE. in consultation
             NYCDOE, in consultation with City and State officials.
                                                         officials, KPMG and Ernst &
                                                                                   &
Young.
Young, established thorough procedures for quality assurance, monitoring and internal
auditing of ARRA expenditures and reporting.
         of ARRA                  reporting. Those procedures included (i) the KPMG
                                                                               KPMG
Readiness Assessment.
          Assessment, (ii) a "dry
                             "dry run" co
                                       conducted
                                          nducted by the NYC Mayor's Office of
Operations for
           for submission and quality review of the data that would be required for
                                                                                for
ARRA reporting in which all
ARRA                    all C ity agencies, including NYCDOE
                                                      NYCDOE participated, (iii) a
requirement that
            that any budget modifications o r journal entries during the course of the
school year involving ARRA funds
            involving ARRA funds be reviewed and pre-approved by NYCDOE
                                                                 NYCOOE fiscal
                                                                        fiscal
    operational
and ope rational support officials trained        ARRA and underlying ARRA grant
                                   trained in the ARRA
requirements; (iv) ongoing internal
requirements:              internal auditing by the Office of
                                                           of Auditor
                                                              Auditor General.
                                                                      GeneraJ, in
coordination with the NYCDOE's audit partner Ernst &
                                                   & Young, of the jobs estimates and
                         ARRA reporting, and compliance testing off central and school­
other data submitted for ARRA
level personal service                                ARRA grant
                selVice and OTPS transactions in each ARRA grant category covering
              of the two-year ARRA grant period.l1
every quarter of

Response to Finding No. 2:
                    No.2:

NYCDOE Has Robust Policies and Procedures for
                                          for Cash
                                              Cash Management and Use oj
                                                                      of
Funds TIuJt Now
Funds That          Committed 10
            Now Are Committed to Writing.
                                 Writing.

The Report notes that
                  that NYCOOE's Department of   of Revenue Operations provided a verbal
explanation
exp lanation of
             of how the claim and cash drawdown
                                        drawdown process for Federal grants works.
                                                                                works, as
well as how NYCDOE
              NYCOOE accounts for for Federal
                                      Federal grant deposits. bUI
                                                              but does not note what
                                                                                 what the
ED·OJG
ED-CIG auditors stated at
                        at the preliminary exit
                                           exil conference,
                                                conference. which is that they
                                                                          lhey concluded

II   A            the quality assurance procedures performed by tile
     A summary of tile                                          the Office     Auditor General and Ernst &
                                                                     Office of Auditor                   &
Young. LLP
       LLP is annexed
              annexed 10
                      to this teUer.
                              tener.
                    OffIce 01
                    Office of Auditor General.
                                      General . 65 Court
                                                   Court SII9&
                                                         SUH!I'. II"'
                                                                 II"' Floor
                                                                      Floor .. Brooklyn
                                                                               Brooklyo.. N&w
                                                                                          New YO<1\I1201
                                                                                              YO<1\I1201
                                      Telephone: (718) 935-2600
                                      Telephone: (718) 935·2600 ·. Fax: (7t6) 935--
                                                                   Fax: (718)       5458
                                                                                935-5458
                                                             5
the policies and procedures described were fuUy satisfactory, and that their only eoncern   conccrn
 was that they had not
                   not been
                       been captured in
                                     in a wrinen
                                          written document.                   In fact,
                                                                                   fact, NYCDOE
independentJy
independendy in the summer of 2009 had written up those policies    polic ies and procedures, and
NYCDOE
NYCDOE provided the ED-IG with a copy of the written SOP in                     in October 2009.
Additionally, the NYCDOE developed and ddistributed                 clear written policies and
                                                       istributed clear
procedure.c;:
procedure.c; on the
                 the use of ARRA
                             ARRA funds,
                                    funds, in the fonn
                                                   fonn of [he
                                                             the School Allocation Memoranda
noted
no ted in the Report, as well as an ARRA Internal Internal Controls PowerPoint
                                                                         PowerPoint presentation
distributed to all
                all schools through
                             through our PrincipalS'
                                          Principals' Portal. The NYCDOE has also issued
School
School Allocation
          Allocalion Memoranda
                      Memoranda forfor the
                                       the specific
                                           specific federal
                                                     federal grams
                                                              grants (i.e.,
                                                                      (i.e., Title  I, IDEA)
                                                                             Title I,  IDEA) under
                                                                                              under
which
which it it expects
            expects to allocate
                        allocate ARRA
                                  ARRA funds
                                          funds to
                                                 to schools,
                                                     schools, and
                                                                and maintains
                                                                      maintai ns aa Reimbursable
                                                                                       Reimbursable
Handbook      ouUining requirements
Handbook outlining      req uirements impacting
                                       impacting the
                                                   the use
                                                        use of its
                                                                 its federal
                                                                     federal reimbursable
                                                                               reimbursable grant
                                                                                              grant
funds.
fund s, including Title I and IDEA.
                               IDEA.

NYCDOE Has Robust
NYCDOE Has Robust Polic ies and Procedures
                  Policies      Procedures for
                                           for Contract Monitoring
                                                        Monitoring Thai
                                                                   Thill Are
                                                                         Are
Wn'lten
Wrinen Into Its Contracts
                Contracts with Service
                               Service Pro.,iders.

The
The Repo"
    Repon notes
          notes that NYCDOE's
                     NYCDOE's Office
                              Office of Special
                                        Special Education
                                                Education Initiatives
                                                          Initiatives provided
                                                                      provided aa
verbal
verbal explanation of how the Related Service Providers contracts were monitored.
                                                                       monitored, but
                                                                                  but
docs
does nOt
     nOt note
         note what
              what the
                   the ED-OIG auditors
                              auditors stated
                                       stated at
                                              at the
                                                 the preliminary
                                                     preliminary eltit
                                                                 exit conference. which
                                                                                  which
is that they concluded the monitoring described was fully
                                                    fu lly satisfactory, and that their only
concern was that they had not
                          n_o t been captured in a wrillen
                                                   written document. In fact, the reports
                                                                                  repom
and documentation that our service providers arc
                                             are required
                                                 req uired to either submit to the
NYCDOE officials responsible
                 responsible for contract monitorin  o r maintain
                                          monitoring or               g
                                                         maintain for on-sile monitoring
andlor audits.
       audits, are laid out in writing in the contracts executed with those vendors.
However, in view
            view of the ED-OIG's
                        ED-OIG' s recommendations, NYCOOE
                                                   NYCDOE agree
                                                          agreess to document,
separately   from
             from    the    contracts themselves, its general
                                                      general contract management
                                                                       management and
monitoring
monitoring policies
           policies and
                    and procedures.
                        procedures.


Sincerely,




Brian Aeischer
Auditor General


Enc!.


cc:
cc:     James Conway
        Deborah
        Deborah Cunningham
                Cunningham
        Charles Szuberla
        Photeine Anagnostopoulos
                 Anagnoslopoulos
        Michael
        Michael Best
        Alison Avera
        Mary
        Mary Coffey
             Coffey


              0IfIee
              0Ib crtr.J AI.dtor Gen«aI · 65
                         AutftorGen«al  • 65 c:o..r.
                                             Court Street  · II"'
                                                     StreeI:. II"' Floor
                                                                   Floor . Brook¥I
                                                                      •    Brook¥I.. New
                                                                                     New Vorlc
                                                                                         Yorlc 11201
                                                                                               11201
                                 Telephone: (718) 93.S-26OD.
                                 Telephone: (718) 935-2600 · Fax:
                                                                FlOC (7181935-5458
                                                                     (7181935-5458
                                                        6
                                      New York City Department of Education
                                 Amer1can Recovery and Reinyestment
                                 American Recoyery     Reinvestment Act o f 2009
                             Quality Assurance Procedures on Section 1512 Reporting
                                                                          Reporting

The Department of Education of the City of NewNew York (the Department) through the Office
                                                                                        Office of the Auditor
General (OAG) contracted Ernst and Young lLLP (the Contractor) to perform quarterly procedures to support the
            In its implementation and compliance
Department in                         tompllance with the American Recovery lind
                                                                               and Reinvestment Act of 2009
                                                                                                        2009
(ARRA or Recovery Act).
                    Act).

Procedures for ARRA Compliance and Reporting in the First Quarter:


In relation to the Department's first quarter reporting to the New York
                                                                   York State Education Department (NYSED), the
Contractor and
           and OAG
               OAG performed procedures to obtain an understanding of and validate the Department's
methodology for calculating the fuJi-time
                                full-time equivalent (FTE)
                                                     (FTE) positions retained and created due to ARRA funding.
                                                                                                      funding.
Procedures
Procedures also Included
                included validating the accuracy and completeness of basic data elements reported for each
ARRA grant awarded to the Department.
                          Department.           Procedures took into account quality assurance standard!;
                                                                                               standards of the
Department, OAG and
                and the Contractor.

A summary of the procedures performed is outlined below.


FTE Positions
    Positions Retained and Creared:
                           Created:
The Department reviewed
               reviewed all guidance Issued
                                     issued to date by the federal
                                                           federal Office of Management and Budget
(USOMB) and United States Department of Education (USDOE) on FTE calculation and reporting.
                                                                                 reporting.                         The
Department confirmed
           confinned its understanding of the guidance during a conference call held with representatives
                                                                                          representatives
from
from the USDOE, the NYSED, the
                           the New York State Governor's Office, the New York City Office of Management
and Budget (NYCOMB)
           (NYCOMB) and the New York City Mayor's Office of Operations (Ops).
                                                                       (Ops).                    Recognizing that
                                                                                                             that the
education community is different from
                                 from other agencies receiving ARRA funds, the group agreed that
                                                                                            that the
Department would select an FTE calculation methodology that would result in a realistic representation
                                                                                        representatioo of the
actual Impact of ARRA dollars.
                      dollars.        The Department
                                          Department drafted and issued to NYSED its proposed calculation
                                                                                              calculation
methodology for reporting the number of jobs retained and created and, consequently obtained written
approval on the methodology from
                            from NYSED.

As required by Section 1512(c)(3){D)
                       1512(c)(3)(D) of the Recovery Act,
                                                     Act, the Department calculated
                                                                         calculated and reported
                                                                                        reported 14,728
                                                                                                 14,128 Jobs
                                                                                                        jobs
retained and 93 jobs created due to ARRA funding for the first ARRA reporting quarter.

 Per the NYSED-approved methodology, the number of FTE             FIE positions retained
                                                                                   retained reflects the school-based
iInstructional staff that the Department would have laid off before the start of the 2009-2010 school year as a
result of an announced $700 million cut in State education aId for NYCDOE in Fiscal Year 2010. Based on the
forecasted
 forecasted budget shortfall in State fundin8-
                                         funding. the Department had to plan its    its Preliminary Budget and project
estimates of necessary layoffs
                          layoffs.. According to civil service law and collective bargaining agreements, if
                                                                                                          jf savings are
to be achieved by layoffs, then those laid-off must be the most jun    junior
                                                                          ior employees whom are usually the lowest
paid. Thus, the Department calculated its FTE    FTE positions retained by dividing the average salary of the most
junior employee into the ARRA dollars it had been allocated.


To validate the Department's FTE positions retained calculation, the Contractor worked with Department
management to understand and document the Department's processes and procedures for complying with
ARRA requirements and tested the underlying assumptions of the Department's FTE calculation.
                                                                            FIE calculatio n. The Contracto
                                                                                                  Contractorr
traced the ARRA dollar allocations used in
                                        in the calculation to supporting documentat
                                                                         documentation
                                                                                    ion (I.e.,
                                                                                        (i.e., the OMB Financial
                                                                                                       Financial


                                                           1
Plan). The
       The Contractor also electronically tested the Department's calculation of the average salary of the most
                                                                                                           most
Junior
junior employee by
                by tracing employee           'ary and
                                            salary and years of service information
                                                                        information to supporting HR and
                                                                                                     and payroll
systems.


The underlying premise of the jobs created calculation
                                           calculation is that all positions funded by ARRA are considered jobs
created, unle
         unless they are Included
                         included in
                                  in the jobs
                                         jobs retained calculation. The Contractor validated
                                                                                   validated that
                                                                                             that the reported
number of FTE positions created was calculated
                                    calculated in accordance              guid!lnce by tracing the
                                                  accordance with federal guidance             the full-time
                                                                                                   full-time
employee
employee hours
         hours to the supporting HR and payroll
                                        payroll system. Additionally,
                                                        Additionally, the
                                                                      the Contractor confirmed that the
                                                                                     confirmed that the ARRA
dollar allocation used in the jobs
                              jobs created calculation was not
                                                           not included
                                                               included In
                                                                        in the jobs
                                                                               jobs relalned
                                                                                    retained calculation. The
Contractor also tested
                tested the mathematical accuracy of the calculation by verifying that each factor of the
            was
calculation wa s supported by adequate documentation and traceable to source documentation and systems.
Further, the Contractor confirmed
                        confirmed that
                                  tha t split-funded positions and vendor calculations (if
                                                                                       (If any) were
                                                                                                were properly
calculated and Included.
               included.

8os/, Polo
80s"  PoCOElements:
           Elements:
The Department reviewed the data elements to be reported as required by
                                                                     by ARRA. It consulted with appropriate
individuals
individuals as necessary to clarify any ambiguity in directives and/or uncertainty In
                                                                                   in the data to report. Further, it
complied with New York City's (NYC) quality control
                                            control process undertaken on all agencies to mitigate material
omissions and reporting
              reporting errors.

The
The Contractor, together with the OAG, identified
                                       identif ied basic
                                                   basic data elements from the list of data
                                                                                        data elements required to
be reported under ARRA. Basic data elements are those thai
                                                      that will remain
                                                                remain consistent through each quarterly
reporting. such as DUNS numbers, addresses, conBressional
                                            congressional district, etc. The Contractor reviewed the
                                                                                                 the data
elements required
         required to be reported per federal, state and city guidance.         It then verified that the basic data
elements reported
         reported to NYSED and NYC were complete as per the guidance. Further, the Contractor verified the
accuracy of the basic
                basic data elements and that these were supported by adequate documentation.

Procedures for ARRA Compliance and Reportlnl in All Quarters:
                                   Reporting In

The Contractor has worked with Department management to understand and document,
                                                                       document, in narrative and
flowchart format,
          format, the Department's processes and procedures for complying with ARRA requirements.                 In
addition, the Contractor will perform quarterly procedures to validate the Department's reporting of key data
elements for each ARRA awarded to the Department
                                      Department,, including the total funds received and spent or obligated,
and the related Job
                Job impact.       These procedures will include tests of data integrity and transactional trail a
                                                                                                                ass
follows:


    •
    •      Perform test check to validate the accuracy and completeness of total ARRA funds recorded as rece
                                                                                                        received
                                                                                                             ived
           in the Department's systems and that school
                                                school allocations were In accordance
                                                                           accordance with the intent of the
                                                                                                         the ARRA
           award.


    •
    •      Perform test check to validate the accuracy of the
                                                          the Department's quarterly full-time
                                                                                     fUll-time equivalent jobs
                                                                                                          jobs
           retained
           retained and/or created number in
                                          in accordance
                                             accordance with the methodology approved by the New York State
           education Department, Including
                                 including consideration for split-funded
                                                             split·funded positions charged
                                                                                    charged to ARRA funding
                                                                                                    fund ing
           sources and applicable vendors' jobs
                                           jobs created data
                                                        data ..

   •
   •       Perform procedures for a selection of schools and
                                                         and Personnel Services and Other Than Personnel Service
        ekpenditure
        eKpenditure transactions to validate:
                                    validate:
                    Compliance with the intent of the ARRA funds awarded to the Department


                                                           2
                                                           2
           Adequate records were
           Adequate records were maintained in compliance
                                 maintained in compliance with the regulatory
                                                          with the regulatory requirements
                                                                              requirement5 for the
                                                                                           for the
           ARRAaward
           ARRA award
           Documentation
           Documentation supports
                            supports selected   transactions, includlns
                                       selected transactions, including evidence
                                                                        evidence of    soods/services received
                                                                                    of goods/services  received
           Selected transactions
           Selected                were supported
                    transactions were    supported by
                                                    by appropriate
                                                       appropriate documentation
                                                                    documentation and  and were
                                                                                            were approved
                                                                                                 approved
           Expenditures
           Elcpenditures meet
                           meet the
                                  the supplement
                                       supplement notnot supplant   requirement for
                                                         supplant requirement            Title I expenditures
                                                                                    for Title    expenditures (as
                                                                                                                las
           applicable)
           applicable)
           Equipment purchased with ARRA
           EquipmC!nt                               funds physically exists,
                                             ARRA funds                 el(lsts, Is safeguarded
                                                                                     sa fegUllrded and
                                                                                                    lind properly
                                                                                                          property
           documented
           documented in    Department records
                         in Department    records
           Adherence
           Adherence to   time and
                       to time  and effort
                                    effort requirements
                                           requirements asas per OMS Circular
                                                             per OMB   Circular A-87
                                                                                 A-a7 

           Unallowable   direct costs
           Unallowable direct         to programs
                                costs to programs were
                                                    were not
                                                         not paid
                                                              paid with
                                                                   with ARRA
                                                                        ARRA funds.
                                                                                funds. 


•
•   Perform test
    Perform test check to validate
                 check to          that ARRA
                          validate that      funds were
                                        ARRA funds were onlv
                                                        only used
                                                             used to
                                                                  to pay vendors that
                                                                     pay vendors that were
                                                                                      were in
                                                                                           in the
                                                                                              the
    Department's
    Department's ARRA
                 ARRA approved
                      approved vendor
                               vendor listing.
                                      listing.

•
•   Perform
    Perform data
            data analytics to verify
                 analytics to verify that total ARRA
                                     that total ARRA claims
                                                     claims received
                                                            received plus total claims
                                                                     plus total claims outstanding
                                                                                       outstanding (requested
                                                                                                   (requested
    but not yet
    but not yet received)
                received) and total claims
                          and total claims to
                                           to be
                                              be requested
                                                 requested does
                                                           does not
                                                                not exceed the budgeted
                                                                    exceed tne budgeted ARRA award
                                                                                        ARRA award
    amount.
    amount.

•
•   Perform
    Perform test
            test check to validate
                 cneck to          the accuracy
                          validate the accuracy and
                                                and completeness
                                                    completeness of
                                                                 of all
                                                                    all required
                                                                        required data
                                                                                 data elements
                                                                                      elements against
                                                                                               against
    supporting
    supporting documentation
               documentation including.
                             including, but
                                        but not
                                            not limited
                                                limited to
                                                        to the
                                                           the following data elements:
                                                               following data elements:
           Amount
           Amount of
                  of (sub)
                     (sub) award
                           award
           Total
           Total (sub)
                 (sub) award
                       award funds
                             funds disbursed
                                   disbursed
           Number
           Number of
                  of jobs
                     jobs created
                          created
           Number
           Number of sub-awards
                  of sub-a wards to
                                 to Individuals (applicable for
                                    individuals (applicable for SFSF
                                                                SFSF -
                                                                     - Government
                                                                       Government Services only)
                                                                                  Services only)
           Total
           Total number
                 number vendors
                        vendors who
                                who received
                                    received awards
                                             awards of
                                                    of less
                                                       tess than
                                                            than S2S,OOO /award
                                                                 S25,OOO/award
           Total
           Total dollar
                 dollar value
                        value of
                              of awards
                                 awards less than $25,000
                                        less than $25,000 awarded
                                                          awarded to vendors.
                                                                  to vendors.
           Total
           Total Federal
                 Federal ARRA
                         ARRA infrastructure
                              infrastructure expenditure,
                                             expenditure, If
                                                          If applicable
                                                             applicable
           Name
           Name and compensation of
                and compensation of highly
                                    highly compensated officers, if
                                           compensated officers, if applicable
                                                                    applicable

•
•   Perform test
    Perform      check of
            test check of journal
                          journal entries
                                  entries involving
                                          involving a change In
                                                             In ARRA
                                                                ARRA fllnding
                                                                     fundlne source
                                                                              source to validate that the
    related
    related expense
            expense was
                    was allowable
                        allowable per
                                  per ARM  grant guidelines
                                      ARRA grant            and/or meets
                                                 guidelines and/or       the grant
                                                                   meets the grant intent.
                                                                                   intent.

•
•   Perform
    Perform test
              test check
                   check to
                         to validate
                            validate that Indirect costs
                                     that indirect costs    were incurred
                                                            were incurred In
                                                                          In accordance
                                                                             accordance with
                                                                                        with indirect cost
                                                                                             indirect cost
    guidelines.
    guidelines.




                                                     3
      JOEL
      JOEL PETlIN
             PETLIN                                                           SOARD OF
                                                                                    Of EOUCATION:
                                                                                       EDUCATION;
SUpO,mllllt/HJnl
SupfI,m ,elldll", 01 5,
                     Schools
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                                                                                ABRAHM,. WIEDER
                                                                                ABRAHAM
                                                                                 p,.,idenl
                                                                                 P'esrde'" EmII ntus
                                                                                           Emerlrus
   JOSEPH
   JOSEPH HARTM"N
          HARTMAN
     O""Ie,
     O"ttkt r'IIUUfI'
            rre ..ure'                                                          HARRY POLATSEK
                                                                                      POlATSEK
                                                                                   Pruident
                                                                                   Ptuidsn'
  JOSHUA
  JOS HUA KAMENSKY
          KAMENSKY
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                                                                                 SIMON
                                                                                 SI MON KEPECS
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                                                                                        P,eslde'"

   December
   December 16, 2009                                                             HERMAN GROSS
                                                                                     Sec,start
                                                                                    Secrelaly


                                                                                 MOSES HIRSCH
                                                                                 MOSES NEUMAN


   Ms. Theresa Savo
   Deputy
   Deputy Commissioner for Operations and Management Services
   New York State Education
                  Education Department
                            Departmen t
   2M West Education
           Education Building
                     Bui lding
   Albany, NY 12234
                                              Re:
                                              Re:    Federal
                                                     Federal Audit Report

   Dcar
   Dc,tr Ms.
          s. Savo.
             Savo,

              I have reviewed the preliminary
                                  prel iminary copy of
                                                    of the USDOE·OIG
                                                           USDOE·OIG audit report of
                                                                                  of
   internal
   intemal conlrols
            control s o ver AARA Funds (co
                            AARA       (control
                                           ntrol number ED·OIG/A02J0009) dated
   December
   December 2009.
             009 . Thank yo
                         youu for giving me the opportunit
                                                opportunityy to respond to the
                                                                           the findings
   concerning the Kiryas Joel School District.
                                     Di strict

              At the outset. lei
                             let me ack
                                    acknowledge
                                        nowledge the thoroughness and professionalism  of the
                                                                      pro fessionalism of
    Federal auditors
    Federal au d itors who
                       who reviewed our systems. Though we
                                                        we strongly
                                                           strongly dispute thei
                                                                            theirr ultimate
   conclusion, we appreciate their
                             thei r guidance and assistance in improving our cont
                                                                             controls.
                                                                                  rols. As
   noted throughout the report. we have already implemented many of                of the
   recommendations. even prior to the conclusion of
                                                  of thei
                                                     theirr review.


   Finding No.5 Controls


         a) System Access
              As stated in the report. al
                                       at the October 29. 2009 exit conference.
                                                                    conference, we presented
                                                                                   presented
              the auditors with a Request
                                  Request for System Access form which identifies
                                                                       identifies the
              appropriate level of access for
                                          for each employee.
                                                   emp loyee. as authorized by both the
              Superintendent
              Superintendent and the Treasurer. These fonns
                                                      forms are maintained
                                                                maintained for each
                                                                               each
              employee
              employee with system access and the network server has already been
                                                                             been secured
              by the Administnltor
                     Admi nistrator consistent with the authorization.
                                                        authorization . The access of
                                                                                   of the
Ms. Theresa Savo
December 16.  2009
          16, 2009
Page 22
Page


      employee referenced in the DIG  GIG Report
                                            Rep0l1 has
                                                     h'IS been
                                                          been modified to "read only"
      status, and our revised proccdure
                                     procedure assures th.n that when an employees'
      responsibilities
      respon sibilities change the corresponding access level
                                                            level is changed accordingly.
      Recommendation 5.1
      Recoml11endation    5.1 has therefore already
                                            al ready been implemented.
                                                           implemen ted.

   b) Establishing
      Estab lishing Processes
      The report states concerns with
      Thc                             our lack of establishment
                                 with our         establi shment of
                                                                 of additional
                                                                    additional
      procedures for the collection and reporting  of AARA data. II note that the
                                        reporti ng of
      identic.1I
      identi c.1I concern was rcported for
                                       fo r the other two school districts included in the
      audit   report. II concur with thc
                                       the reported comments of NYCDOE
                                                                  NYC DOE and
      Harborficlds and await guidance
      I-Iarborfields           guida nce from NYSED on the additional
                                                             additional reporting
      measures described in Recommendation 5.2.
                                              5.2.

   c) Training
      Trai ning
                                    at the October 29,
      The report fails to note that at             29, 2009 exit conference, auditors
      were shown copies of
                        of the       _
                                     _ User
                                       User Manuals for each of
                                                             of the software
      modules in use. All employees that
                                    Ihat use the software are aware that
                                                                    thai the user
      manuals
      manua ls are kepI
                   kept in binders in
                                   in the District Office and are available
                                                                  availab le to Ihem
                                                                                them al
                                                                                     at
      any lime.
          time . All
                 All new employees receive on-site training from               _
                                                                               _             and
      receive the monthly _      _         newsletter describing the system updates.
      Additional assistance is provided to each     emp loyee by _
                                              each employee        _             staff
                                                                                 staff via their
      helpline
      helpl ine on an as-needed basis. Finally,
                                         Fina lly, the School District wi   will
                                                                              ll fomlalize
                                                                                 formali ze the
      on-going training process for all centml
                                         central husiness
                                                  busi ness office sllllThy
                                                                    slllrT hy addressing
                                                                              address ing their
      professional   development nneeds
      profess iona l development     ee ds in
                                            in the Superintendent's
                                                     Superi ntendent's Conference Days     Days
      programming.
      programmi ng. We believe that these  these procedures represent an appropriate
      systematic training
                  tra in ing program sufficient to
                                                 to meet the training
                                                               traini ng requirements listed
                                                                                          listed
         Recommendation 5.3.
      at Recommendation       5.3.

Finding
Findi ng No.6
         No. 6 Payroll
               Payroll Process
                       Process

                  noted at the exit conference on October 29,
              As noted                                        29, 2009,
                                                                   2009, the School
                                                                               School District
      has developed and implemented
                            imp lemented procedures to con  confirm
                                                               firm   that payroll checks are
      properly received by allall employees.
                                  employees. Two forms
                                                     form s have been created to document
      the dist
           distribution
               ribution of checks.
                            checks. One form is  is signed by a building representative in  in
      order to confirm their receipt of  of payroll checks for distril-<ution.
                                                                   di stri~ution. The second
      fnrm
      form is signed hy          employee to confirm the receipt oorf their own check or
                           each employee
                        hy each
      check stub (if direct deposit of salary). In addition, prior to affixing his         his
      signature, the Treasurer
                      Treasurer confirms Ihat
                                            that the total
                                                     lotal number ofof checks issued and the
      total dollar amount of of payroll
                                payroll is consistent with the Payroll
                                                                 Payroll Register report.
                                                                                   report. As
      sllch,
      such, all payroll
                  payroll checks are properly accounted for,      for , in compliance with
      Recommendation 6.1. 6.1.
 Ms. Theresa Savo
December 16,2009
         16,2009
Page 3
     3

Finding No.7 Disbursement Process

             It
             It has been alleged that a control deficiency exists in    in our accounting
       software, created by              Inc. At the exit
                                                       ex it conference on October 29, 29,
       2009, we pointed to a number of
       2009,                              of compensating controls that address the
       concern for duplicate
                    dup licate check
                               check numbers. We pointedpOinted out our procedures to
       reconcile reports that would reveal if
                                            if a duplication occurred. Our liseuse of
                                                                                   of pre·
                                                                                      pre­
       numbered checks further diminishes
                                dimini shes the risk of
                                                     of fraud or error.

              Nevertheless, because this
                                    th is alleged deficiency has statewide implications
       (see "Other Maners",
                   Matters", page     18) for all
                                              all districts using
                                                            using            software, we
       contacted th
                 thee company for their response. As con finned in the attached letter
                                                                                letter
       dated December 15,
                      15, 2009,
                          2009,                    has agreed to implement a check
       verification
       verifi cation control, eliminating the possibility
                                              possibi lity of
                                                           of duplicate
                                                              dupl icate check numbers, in
       their next software update which will be available in January
                                                             January 20 I O. With these
                                                                     2010.
       changes, both Recommendation  7.1 and 7.2 will be fully
                     Reconunendation 7.1                 full y implemented.
                                                                implemented.

Finding No.8 Policies and Procedures
                          Procedures

             Purchasing
              Purchasing and cash receipt procedures have been     been appropriately
       amended and have been included in the Policy Manual
                                                      Man ua l. These procedures
                                                                      proced ures were
                implemented prior to our October
       likewise implememed               Octobt:r 29, 2009 exit
                                                           exit conference, consistent
       with Recommendation
            Recommendation 8.1.
                             8.1.

       In conclusion, of the 7
                             7 Recommendations contained in
                                                         in the Audit Report, 33
issues have been completely addressed and the remaining 4
                                                        4 will be implemented
within the next
           next 60 days. In
                         In light of titis,
                                     this, I respectfully
                                             respect full y request that
                                                                    that a) the findings be
                                                                                         be
corrected to reflect our progress in these areas and cooperation in
                                                                 in improving our
control systems, b) the OIG follow·up
                            follow-up audit referred to on Page 2 be limited to
confirming
confinning that
           that the above noted controls
                                control s are indeed
                                              indeed in·place,
                                                     in-place, and c) these comments
                                                                            conunents
be included in any publication of
                               of the
                                  the final
                                      final audit report.
                                                  report.

      Thank you for your consideration.


                                                              Sincerelv..
                                                              Sincerelv..
                                                               lsi


                                                              Joel
                                                              Joe l Petlin
                                                              Superintendent
Cc: Board of
          of Education
             Education
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        g
        I
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                                                 Central School District
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             December 23,
             December 23, 2009
                          2009




                     $avo
             Theresa Savo
             Theresa
             Deputy Commissioner for 

             Deputy
             Operations & Management
             Operations   Management Services 

                 West Education
             2 M West
             2        Education Building
                                Buikling 

                                Buildjng
                     New York
             Albany, New York 12234 

                         Yor1t

             Dear Ms. Savo:

                           will find
             Attached you will       the response
                                find the          of the
                                         response of     Harboff!8lds Central
                                                     the Harborftelds
                                                         Harbortields           School District
                                                                       Cenl ral School District
             regarding the
                       the U.S. Department
                                  Department of Education,  Offrce of Inspector General Audit
                                                Educatkln, OffICe                        Audit
                       December 2009.
             Report of December

             Sincerely,
             Sincerely,
             Sincerety.




                     Carasltl
            Frank J. Carasiti
                     Carasl!!
            Superintendent
            Superintendent of Schools
                              Schools

            FJC11p
            FJCfltp
            FJCl)tp
            c:
            c:         Board of Education
                       Board
                       Board    Education
I'INI>ING        Ibrborfields
          NO.3: Ha
I'I NDING NO.3:               L:.Icketll'rogrcu
                   rborfiehb Lacked    l' rugreSll in  slllbliJhing I'rocesses
                                                   in Establishing  l'roct'5sH to
                                                                               10 t:nsure
                                                                                  Ensure
           wilh
Compliance wit   ARRA Reporting
               h ARRA              Hcq uire me n ls
                       Hcporling Requirements


Recommendations:
We recommend    that the
   recommend that    the Assistant               OESE require NYSED
                         Assistant Secretary for OESE                  ",
                                                                       ..ork with
                                                              NYSED to work  with
Uarborficlds 10--
Harborfields to--



                                       mea. ures that are needed
3.1 Determine and implement additional mca.~urcs
3.1                                                       needed to mitigate tnc
                                                                             the risk
                                                                                 risk of
Harborfields' noncompliance with ARRA reporting requirements.

        Since the time of the fieldwork,
                              fieldwork, NYSED has provided some guidance regardi  regarding
                                                                                           ng
            reporting requirements of ARRA. A reporting
        the reponing                               reponing method de  developed          stute
                                                                          veloped by the sl<ltc
        made available
              available the framework
                            framework of reponing
                                          reponing for school districts. Harborfields hilshas
        followed
        followed direction given by NYSED and  and the initial repon med
                                                       initial report filed by Harborl'ields
                                                                               Harborfields
        mel        ing requirements incorpol1!.ted
                filing
        met the m                                  within the state's
                                    incorporated within        statc's reporting system.
                                                                                 system.



         NO.4: 1:I:lrborfields
FINDING NO.4:   H:trborfi elds Lacked Cerlain Wrillcn I'olicies
                                      Certain Written l'oliciCll and
                                                                 and Proccdures
                                                                     Prucedures for
                                                                                for
Cash
Manllgemenl and Use
Management and  Usc of
                     of Funds

Recomme nd illi
Recommenda     on s
             tions
We
We recommend
   recommend that
             that the
                  the Assistant
                      Assistant Secretary for
                                          for OESE
                                              OESE require
                                                   require NYSED to
                                                                 to work
                                                                    work with
                                                                         with
Harborfields to implement \\oTitten
                          written policies                  t
                                    policies and procedures to--

4.1
4.1 Minimize
    Minimize the time
                 lime lapse between the receipt and disbursement of Federal funds;
                                                    disbursement of         funds;
       The district will develop
                         devel op and codify procedures to emulate current practices by
       which Federal funds are received,
                               received, assigned and disbursed.

4.2 Remit
    Remit excess interest earned on Federal
                                    Federal funds
                                            funds to ED;
       Harborfi elds will create procedures to monitor the receipt and use
       Harborfields                                                    usc of Federal
                                                                              Fcdcral
       monies to ensure that
                        that interest
                             interest earned on Federal funds
                                                        fund s is
                                                               is examined. The
       procedure will assure that interest in excess of
                                                     of one hundred dollll
                                                                    dollars is remitted to
       Ihe
       the education department inin accordance with regulation (C.F.R.) §§ 80.21(i).

4.3
4.3 Require
    Require the
            the monitoring
                monitoring of
                           of receipt
                              receipt of
                                      of Federal
                                         Federal funds;
                                                 funds;
       I'oliey
       Policy will be fonned
                      fonned to
                             to follow
                                follow the
                                       the district's
                                           district's practice
                                                      practice to
                                                               to ensure
                                                                  ensu re that
                                                                          that Federal
                                                                               Federal funds
                                                                                       fund s
       are used
           used in accordance willI
                               with the laws, regulations and provisions of
                                                                         of the Federal
                                                                                Federal
       program
       program under
                 under which the funds
                                 funds are granted.

4.4 Ensure that the records management
                            managemcnt system is maintainL"<l;
                                                 maintained; and
       The
       The district currently
                    currently follows
                              follows the regulations
                                          regulations promulgated by the state
       commissioner of
                    of education as
                                 as set fonh
                                        forth in
                                              in policy
                                                 poliey 111120.
                                                            20. A
                                                                A companion regulation
                                                                            regulation
       will
       will be produced to outline the processes
                                         processes used
                                                   used for the maintenance and retrieval of
                                                                                          of
       the district's financial
                      financial rttOrds.
                                records.
4.5 Ensure
4.5 Ensure that
           thaI contractors' past performances
                                  pcrlormanees arc reviewed and documented prior to
                                               3rc rcviewed                      to the
awarding ora
         ofa contract.
             contntCI.
       Purchasing
       Purchasing policy
                  policy or
                         of the school
                                school district incorporatt!s
                                                incorporales both
                                                              bolh General Municipal Law
       and
       lIud Education
            Educa tion Law to
                           to assure
                              assure that
                                     that the
                                          Ihc district operates both
                                                                bolh efficiently and
       cl:ollolllically.
       CCUllumicatly. Rcg<:trdk  s urllLe
                         Rcgardk~s ufllLe rUIIlJillg
                                          fUllllillg source
                                                     MJurcc Ihe: ui  lricl'S pulicy
                                                                 o.lislricl's ptjJil:Y iis llppJicu.
                                                                                           llpplicd.
       An expansion of Ihc
       An              the current policy to
                                          to document that appropriate
                                                           appropriate rt:view
                                                                       review of each
       vcndor's
       vendor's perfonnancc
                perfonnance is undcnaken will be included and communicated to
       alTectcd
       affected staff.
                staff.




                                                                                                       2
                                                                                                       2
        Anyone knowing of fraud, waste, or abuse involving
         U.S. Department of Education funds or programs
     should call, write, or e-mail the Office of Inspector General.

                             Call toll-free:
                      The Inspector General Hotline
                   1-800-MISUSED (1-800-647-8733)

                                Or write:
                        Inspector General Hotline
                      U.S. Department of Education
                       Office of Inspector General
                        400 Maryland Ave., S.W.
                         Washington, DC 20202

                                Or e-mail:
                            oig.hotline@ed.gov

      Your report may be made anonymously or in confidence.

For information on identity theft prevention for students and schools, visit
        the Office of Inspector General Identity Theft Web site at:
                           www.ed.gov/misused




          The U.S. Department of Education’s mission is to promote
       student achievement and preparation for global competitiveness
        by fostering educational excellence and ensuring equal access.

                                www.ed.gov