School Scandals Prompt Reform Legislation

School Scandals Prompt Reform Legislation
Coalition Quickly Drafts Law to Improve Accountability

By Simon Eskow

Continued from the Home Page

“The public must feel confident that basic protections are in place to ensure that their tax dollars are being spent properly and honestly,” State Comptroller Alan Hevesi said in a statement on Jan. 12.

Hevesi joined legislative sponsors Stephen Saland (R/C—Poughkeepsie), chairman of the Senate Education Committee, and State Assemblyman Thomas DiNapoli (D/I/WF—Great Neck), among other sponsors, education groups and The New York State Society of CPAs in support of the bill.

The bill comes hard on the heels of Hevesi’s audit of the Roslyn School District, where since last summer, when the scandal became public, three people have been arrested for allegedly defrauding the district of more than $2.3 million. A report of the audit, released on Jan. 6, found a pattern which was described by Hevesi as “appallingly inadequate” work by the district’s former independent auditor, Miller, Lilly & Pearce, of East Setauket, N.Y. The report found violations of nine of 22 accounting principles on the part of the firm, and evidence of conflicts of interest, including the fact that the firm was hired as the district’s auditor without a competitive bidding process.

Hevesi last July invited the NYSSCPA to join his School Financial Accountability Coalition of education, accounting and legislative groups, which began to draft legislation based on and extending a five-point plan for school accountability reform.

These included requiring districts to form audit committees to ensure audit findings receive adequate oversight; creating the internal audit function, while enhancing and clarifying the role of the claims audit function; training for school board members on financial oversight responsibilities within the first year after their elections; mandating a competitive RFP process for school districts selecting audit firms; and enhancing the effectiveness of annual external audits of school district records.

“This legislation is an effective response to the abuses uncovered in Roslyn,” said DiNapoli. “(It) will put in place appropriate safeguards to protect taxpayers in school districts across New York state.”

The coalition that worked with the Comptroller included representatives from the New York State School Boards Association, the NYSSCPA, the New York State Council of School Superintendents and the New York State Association of School Business Officials, in consultation with representatives from the State Education Department.

Cosponsors of the bill include Senator Michael Balboni (R—East Williston), Senator Ken LaValle (R—Port Jefferson), Assemblywoman Patricia Acampora (R—Mattituck), Assemblyman Thomas Alfano (R/I/WF/C—North Valley Stream), Assemblywoman Patricia Eddington (D/WF—Patchogue), Assemblyman Steve Englebright (D—East Setauket), Assemblywoman Ginny Fields (D—Oakdale), Assemblyman Robert Sweeney (D—Lindenhurst), Assemblyman Fred Thiele (R/I/WF—Sag Harbor) and Assemblyman Harvey Weisenberg (D—Long Beach).

In addition to its help in drafting the proposed legislation, the Society has been responding to the issue in other ways. Sen. Kenneth P. LaValle (RCI—Port Jefferson), chair of the Senate Higher Education Committee, has invited the Society to testify for a hearing on the topic scheduled for Jan. 25, along with the Comptroller and the SED.

The Society also responded in an Op-Ed article in Newsday.

“Hevesi’s uncovering of massive alleged improprieties in the Roslyn school district audit is disturbing to taxpayers and to parents who assume their money is being channeled to the education of children,” the article stated. “Such allegations are also painfully disturbing to the CPA profession…One of the most important lessons we can all learn from this is that reforms to tighten regulation of the CPA profession (which the Society and others have been proposing for a number of years) should have been taken more seriously.”

What the Bill Does

The legislation applies to all school districts, with specific exemptions for New York City and other municipalities with large school systems and for school districts with fewer than eight teachers.

The Audit Committee

The bill would force school boards to take a more active role in overseeing school finances, partly with the formation of an audit committee no later than Jan. 1, 2006. The committee would report to the school board on the annual audit of the school district, and membership would exclude employees of the school district, to avoid any conflict of interest.

External audits, such as those conducted by CPAs, would still be approved by a resolution of the board, but the audit committee would have to make recommendations regarding the auditor, meet with the auditor before an audit to review and discuss any risk assessment, review the draft annual audit report and accompanying management letter, and, working directly with the external auditor, assist the board in interpreting the documents. The audit committee would, finally, make recommendation to the board whether or not to accept the report, and review and oversee any corrective action plans to come out of the audit.

The audit committee would also oversee a new internal audit function, recommending appointments of the internal auditor, reviewing the auditor’s findings and recommendations and monitoring their implementation, and evaluating the performance of the internal audit function.

The Internal Audit Function

Under the internal audit requirement, school boards will have to establish such a function by July 1, 2006, to be in operation by the last day of that year. The function would include the development of a risk assessment of district operations, including a review of financial policies and procedures and the testing and evaluation of internal controls. The function would also have an annual review and update of the assessment, and presentations at least once a year, but more when required, analyzing the significant risk assessment findings, with recommended changes for strengthening controls and timeframes for remedies.

Existing personnel would be allowed to fill that function provided they have no other responsibility for business operations while serving in that function.

Training for School District Officers

School board members appointed for terms beginning after July 1, 2005 will have to complete, within their first year, a minimum six hours of training on the financial oversight, accountability and fiduciary responsibilities of a school board member. This would be a one-time training requirement.

Claims Auditor

The bill would require districts to establish an office of claims auditor that would have the school board’s authority to allow or reject all accounts, charges, claims or demands against the school district. The rule prohibits hiring certain people, such as school board members, that would present a conflict of interest.