Welcome to The CPA Journal Archives

Visit cpajournal.com to read the very latest from The CPA Journal


Under Attack: New York's School District Audit Mandate

Joanne S. Barry, CAE

The recent financial crisis reminded us that it sometimes takes an event of truly epic proportions to shine a light on a problem that is in dire need of a solution. But we've been here before—on a smaller scale. Remember the Roslyn School District scandal in 2005, when the district's superintendent, assistant superintendent, and account clerk were found to have defrauded taxpayers of more than $11 million over a nine-year period?

That fraud case highlighted the lax state law governing the fiscal activities of school boards, and it quickly became apparent that this type of massive fraud could potentially occur not just in Long Island, but in any of New York State's school districts. The incident led to a public outcry for reform and stricter fiscal oversight of school boards. Luckily, that's exactly what we got.

Resulting Legislation

Legislators, the Office of the State Comptroller, state education associations, and the NYSSCPA formed a coalition to draft legislation that required training for school board members on their financial oversight responsibilities, established an internal audit function within each school district, created audit committees in school districts, mandated a competitive request-for-proposals (RFP) process for selecting an audit firm, and required direct school board involvement and a formal response to issues raised in the annual external audit.

The state legislature also directed the Office of the State Comptroller to conduct an audit of every public school district in the state over the course of five years. According to the state comptroller's 2009 annual report, these audits identified $615.4 million of excess funds—unnecessarily tied up in various reserve funds—that were not benefiting taxpayers. It also identified $24 million of potential cost savings and revenue enhancements that school districts could achieve, and it found instances of outright fraud or theft in 19 school districts.

Amending the Legislation

Four years later, no fewer than three different bills in the state legislature seek to undermine the very same reforms lawmakers worked so hard to enact in 2005, all in the name of “mandate relief.” One bill in the New York State Senate calls for internal school district audits to be conducted every five years; another, introduced in the New York State Assembly, would require an audit every three years; and a third, also in the senate, would allow internal school district audits to be optional, unless directed by the Office of the State Comptroller. All three bills have been referred to senate or assembly education committees.

Unfunded regulatory mandates can create a huge fiscal burden on our school districts, but gutting this law is not the type of relief our districts need. Municipalities are still suffering from scores of layoffs and years of budget cuts. Most CPAs are familiar enough with the fraud triangle to know the three factors that contribute to fraudulent activity: perceived opportunity, incentive or pressure, and rationalization. The recession left a lot of desperate people with the potential motivation to commit fraud. Clearly, now is not the time to amend this law, unless that amendment includes a move to make it stronger. That is what Cynthia R. Phillips and Nina T. Dorata, recommend in this month's CPA Journal cover story, “School District Boards, Audit Committees, and Budget Oversight: Seeking a Formula for Good Governance.”

The article contains a lot of good information, such as the findings from a recent survey of Long Island school districts' governance structures that included what the authors characterized as “limited independence and expertise on school district audit committees. This limitation, combined with legislative attempts to reduce internal audit requirements, could result in unintended consequences for taxpayer funds.”

Phillips and Dorata called on government officials to “consider strengthening the law … in order to include minimum nonboard membership and require school boards to give greater weight to appointing CPA applicants,” because they found that a lack of CPAs on the audit committee is correlated with an increase in spending.

A Continuing Effort

After dying in committee last year, the three aforementioned bills seeking to undermine the 2005 reforms are making a return appearance in 2013. The NYSSCPA will continue to oppose any of these amendments during this legislative session, and I hope you'll help us in this effort. You might want to attend your school district's next board meeting and introduce yourself to the school business administrator. I am sure that there are a few district audit committees that could use your help.

Joanne S. Barry, CAE. Publisher. The CPA Journal, Executive Director, NYSSCPA, barry@nysscpa.org.

Search for archived articles, authors, and topics below:


Login or create a new account