internal controls over payroll

DIVISION OF LOCAL GOVERNMENT & SCHOOL ACCOUNTABILITY

O F F I C E O F T H E N E W Y O R K S T A T E C O M P T R O L L E R

Report of ExaminationPeriod Covered:

July 1, 2007 — February 28, 2009

2009M-130

Half Hollow HillsCentral School District

Internal Controls OverPayroll

Thomas P. DiNapoli

11DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY

Page

AUTHORITY LETTER 2

INTRODUCTION 3 Background 3 Objective 3 Scope and Methodology 3 Comments of District Offi cials 4

PAYROLL 5

APPENDIX A Response From District Offi cials 7APPENDIX B Audit Methodology and Standards 9APPENDIX C How to Obtain Additional Copies of the Report 11APPENDIX D Local Regional Offi ce Listing 12

Table of Contents

2 OFFICE OF THE NEW YORK STATE COMPTROLLER2

State of New YorkOffi ce of the State Comptroller

Division of Local Governmentand School Accountability

August 2009

Dear School District Offi cials:

A top priority of the Offi ce of the State Comptroller is to help school district offi cials manage their districts effi ciently and effectively and, by so doing, provide accountability for tax dollars spent to support district operations. The Comptroller oversees the fi scal affairs of districts statewide, as well as districts’ compliance with relevant statutes and observance of good business practices. This fi scal oversight is accomplished, in part, through our audits, which identify opportunities for improving district operations and Board of Education governance. Audits also can identify strategies to reduce district costs and to strengthen controls intended to safeguard district assets.

Following is a report of our audit of the Half Hollow Hills Central School District, entitled Internal Controls Over Payroll. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the State Comptroller’s authority as set forth in Article 3 of the General Municipal Law.

This audit’s results and recommendations are resources for district offi cials to use in effectively managing operations and in meeting the expectations of their constituents. If you have questions about this report, please feel free to contact the local regional offi ce for your county, as listed at the end of this report.

Respectfully submitted,

Offi ce of the State ComptrollerDivision of Local Governmentand School Accountability


Background

Introduction

Objective

The Half Hollow Hills Central School District (District) is located in the Towns of Huntington and Babylon, Suffolk County. The District is governed by the Board of Education (Board) which comprises seven elected members. The Board is responsible for the general management and control of the District’s fi nancial and educational affairs. The Superintendent of Schools (Superintendent) is the chief executive offi cer of the District and is responsible, along with other administrative staff, for the day-to-day management of the District under the direction of the Board.

There are 11 schools in operation within the District, with approximately 10,100 students and 1,200 employees. The District’s budgeted expenditures for the 2008-09 fi scal year are $196.2 million, which are funded primarily with State aid, real property taxes, and grants. Salary and employee benefi ts comprise approximately 77 percent of annual expenditures.

The objective of our audit was to determine if internal controls over payroll were appropriately designed and operating effectively to adequately safeguard District assets.

During our audit of the Half Hollow Hills Central School District, our overall goal was to assess the adequacy of the internal controls put in place by offi cials to safeguard District assets. To accomplish this, we performed an initial assessment of the internal controls so that we could design our audit to focus on those areas most at risk. Our initial assessment included evaluations of the following areas: fi nancial oversight, control environment, cash receipts and disbursements, purchasing, information technology, payroll and personal services. Based on that evaluation, we determined that controls appeared to be adequate and limited risk existed in most of the fi nancial areas we reviewed. We did determine that risk existed in the payroll area based upon the results of limited testing performed and, therefore, we examined internal controls in this area for the period July 1, 2007 to February 28, 2009.

We conducted our audit in accordance with generally accepted government auditing standards (GAGAS). More information on such standards and the methodology used in performing this audit is included in Appendix B of this report.

Scope andMethodology


Comments of District Offi cials

The results of our audit have been discussed with District offi cials and their comments, which appear in Appendix A, have been considered in preparing this report. District offi cials generally agreed with our positive audit fi ndings.


Payroll

Salaries, wages, and employee benefi t costs comprise the most signifi cant portion of the District’s budget. Therefore, it is important to have strong internal controls in this area. Internal controls over payroll consist of written policies and procedures that describe employee responsibilities in preparing and disbursing payroll, as well as written Board authorization for salaries, wages and fringe benefi ts. District-wide policies, collective bargaining agreements and/or individual employee contracts should clearly stipulate employees’ entitlement to the accrual, use, and payment of leave time. Payments for unused leave upon separation from employment should occur only as authorized by the Board in policies, agreements or contracts, or by separate Board resolutions. An effective system of internal controls should also include proper segregation of duties and management oversight. Where practical, duties should be separated so that one employee does not control all phases of the payroll process. In smaller environments where optimal segregation is not practical, active oversight and monitoring becomes even more critical.

We found that the District has established an adequate system of internal controls over payroll which is appropriately designed and operating effectively to safeguard District assets. District offi cials have implemented specifi c procedures to ensure that the individuals included on each payroll are bona fi de District employees, are paid at their approved salaries and wages, and receive only those benefi ts to which they are entitled. The District maintains leave accruals at the Personnel Offi ce and at each individual building in the District for comparison. The Business Offi ce sends District employees leave accrual balance reports in April, June, and November of each school year. Employees are required to confi rm their own leave balances with their signature and send the reviewed report to the Payroll Department.

The District has also established control procedures over the payroll process that include adequate supervision and oversight. Specifi cally, we noted that after separation payments are prepared, employees of the Personnel Department and the Accounting Department review the separation payments, and fi nally the accounting/payroll supervisor reviews and approves the calculations. Furthermore, someone independent of the payroll function audits the payrolls for period to period changes; the Assistant Superintendent for Finance and Facilities then reviews the payroll prior to the Superintendent reviewing and certifying the payroll. We also noted that the Board


approves all new employees and formally accepts all resignation and retirements before any changes are made to payroll data.

We tested 27 termination payments totaling $1,742,958; 20 overtime payments totaling $22,234; 20 employee leave records for vacation, personal and sick leave, covering eight different collective bargaining agreements; and 20 employee payroll/personnel records. Our testing revealed only minor discrepancies in the District’s adherence to its policies, which we discussed with District offi cials to help them improve controls in this area.


APPENDIX A

RESPONSE FROM DISTRICT OFFICIALS

The District offi cials’ response to this audit can be found on the following page.


APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

Our overall goal was to assess the adequacy of the internal controls put in place by offi cials to safeguard District assets. To accomplish this, we performed an initial assessment of the internal controls so that we could design our audit to focus on those areas most at risk. Our initial assessment included evaluations of the following areas: fi nancial oversight, control environment cash receipts and disbursements, purchasing, information technology and payroll and personal services.

During the initial assessment, we interviewed appropriate District offi cials, performed limited tests of transactions and reviewed pertinent documents, such as District policies and procedures manuals, Board minutes, and fi nancial records and reports. In addition, we obtained information directly from the computerized fi nancial databases and then analyzed it electronically using computer-assisted techniques. This approach provided us with additional information about the District’s fi nancial transactions as recorded in its databases. Further, we reviewed the District’s internal controls and procedures over the computerized fi nancial databases to help ensure that the information produced by such systems was reliable.

After reviewing the information gathered during our initial assessment, we determined where weaknesses existed, and evaluated those weaknesses for the risk of potential fraud, theft and/or professional misconduct. Based on that evaluation we determined that controls appeared to be adequate and limited risk existed in most of the fi nancial areas we reviewed then decided on the reported objectives and scope by selecting for audit those areas most at risk. We selected payroll for further audit testing.

To accomplish the objective of this audit and obtain valid audit evidence, our procedures included the following:

• We reviewed pertinent documents, including the Board Minutes and District’s policies and procedures.

• We reviewed the various contractual collective bargaining agreements and personal employment contracts.

• We interviewed key personnel in order to gain a better understanding of the policies, procedures and methods utilized in the payroll and personnel department.

• We reviewed the District’s payroll records for accuracy and approvals.

• We examined personnel folders for completeness.

• We examined employees’ payroll records for reporting of employee personnel data.

• We examined employees’ leave accrual and overtime records for accuracy.


We conducted our performance audit in accordance with generally accepted government auditing standards (GAGAS). Those standards require that we plan and perform the audit to obtain suffi cient, appropriate evidence to provide a reasonable basis for our fi ndings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our fi ndings and conclusions based on our audit objective.


APPENDIX C

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

To obtain copies of this report, write or visit our web page:

Offi ce of the State ComptrollerPublic Information Offi ce110 State Street, 15th FloorAlbany, New York 12236(518) 474-4015http://www.osc.state.ny.us/localgov/


BUFFALO REGIONAL OFFICERobert Meller, Chief ExaminerOffi ce of the State Comptroller295 Main Street, Suite 1032Buffalo, New York 14203-2510(716) 847-3647 Fax (716) 847-3643Email: [email protected]

Serving: Allegany, Cattaraugus, Chautauqua, Erie,Genesee, Niagara, Orleans, Wyoming counties

ROCHESTER REGIONAL OFFICEEdward V. Grant, Jr., Chief ExaminerOffi ce of the State ComptrollerThe Powers Building16 West Main Street – Suite 522Rochester, New York 14614-1608(585) 454-2460 Fax (585) 454-3545Email: [email protected]

Serving: Cayuga, Chemung, Livingston, Monroe,Ontario, Schuyler, Seneca, Steuben, Wayne, Yatescounties

SYRACUSE REGIONAL OFFICEEugene A. Camp, Chief ExaminerOffi ce of the State ComptrollerState Offi ce Building, Room 409333 E. Washington StreetSyracuse, New York 13202-1428(315) 428-4192 Fax (315) 426-2119Email: [email protected]

Serving: Herkimer, Jefferson, Lewis, Madison,Oneida, Onondaga, Oswego, St. Lawrence counties

BINGHAMTON REGIONAL OFFICEPatrick Carbone, Chief ExaminerOffi ce of the State ComptrollerState Offi ce Building, Room 170244 Hawley StreetBinghamton, New York 13901-4417(607) 721-8306 Fax (607) 721-8313Email: [email protected]

Serving: Broome, Chenango, Cortland, Delaware,Otsego, Schoharie, Sullivan, Tioga, Tompkinscounties

GLENS FALLS REGIONAL OFFICEKarl Smoczynski, Chief ExaminerOffi ce of the State ComptrollerOne Broad Street PlazaGlens Falls, New York 12801-4396(518) 793-0057 Fax (518) 793-5797Email: [email protected]

Serving: Clinton, Essex, Franklin, Fulton, Hamilton,Montgomery, Rensselaer, Saratoga, Warren, Washingtoncounties

ALBANY REGIONAL OFFICEKenneth Madej, Chief ExaminerOffi ce of the State Comptroller22 Computer Drive WestAlbany, New York 12205-1695(518) 438-0093 Fax (518) 438-0367Email: [email protected]

Serving: Albany, Columbia, Dutchess, Greene, Schenectady, Ulster counties

HAUPPAUGE REGIONAL OFFICEJeffrey P. Leonard, Chief ExaminerOffi ce of the State ComptrollerNYS Offi ce Building, Room 3A10Veterans Memorial HighwayHauppauge, New York 11788-5533(631) 952-6534 Fax (631) 952-6530Email: [email protected]

Serving: Nassau, Suffolk counties

NEWBURGH REGIONAL OFFICEChristopher Ellis, Chief ExaminerOffi ce of the State Comptroller33 Airport Center Drive, Suite 103New Windsor, New York 12553-4725(845) 567-0858 Fax (845) 567-0080Email: [email protected]

Serving: Orange, Putnam, Rockland, Westchestercounties

APPENDIX DOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY

Steven J. Hancox, Deputy ComptrollerJohn C. Traylor, Assistant Comptroller

LOCAL REGIONAL OFFICE LISTING

internal controls over payroll

Documents

district operations

district assets

district costs

t e c o

state constitution

state aid

board of education board

appendix c