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Published in Print: October 26, 2005, as In N.Y., Auditors Comb School Districts’ Books

In N.Y., Auditors Comb School Districts’ Books

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Questionable spending has come to light in more than a dozen school districts in New York state in the wake of a high-profile fraud case in a Long Island district. Prompted by the alleged theft of $11 million in Roslyn, N.Y., state Comptroller Alan G. Hevesi has sent auditors into 46 districts in recent months.

In one district, the superintendent charged $353 on a district credit card for two leather briefcases. In another, a school board member rented a $399-a-night hotel suite at the district’s expense. In a third, thousands of dollars were tapped from district accounts for retirement parties.

“We’ve found the whole range,” Mr. Hevesi said in an interview last week. “Some well-run districts, some poorly run districts, and some corrupt districts.”

And he’s just getting started. In July, state lawmakers approved funding for Mr. Hevesi to hire 84 additional auditors to check the books of all 700 districts in New York within five years. They also passed a requirement that local school board members get trained on keeping tabs on finances.

Some district leaders say the comptroller has blown things out of proportion. Although arrests have been made in six districts over the past year, most of the audits have found a lack of proper documentation and approval for minor expenses.

Others counter that lax oversight of the kind Mr. Hevesi is uncovering can lead to serious wrongdoing. In the Roslyn district—where the superintendent has pleaded guilty to stealing at least $1 million and five other people have been charged—the alleged thefts began with small charges to district accounts.

Timothy G. Kremer, the executive director of the New York State School Boards Association, said that while some of his members may feel they’ve gotten a black eye in the process, many will be better off for having undergone the scrutiny.

“They may be swallowing hard,” he said. “But the ones I know want to run a clean shop. And if this means everyone’s going to pay more attention to tightening things up, I think in the end this will turn out to be good.”

Spending Spree

A Democrat elected in 2002, Mr. Hevesi is best known for leading a suit against the telecommunications giant WorldCom. Representing investors who suffered losses because of accounting fraud by the company, the state comptroller won a $6 billion settlement in the case last month.

Five Steps to Financial Accountability

New York state Comptroller Alan G. Hevesi’s office worked with a coalition of education organizations to craft legislation to strengthen financial oversight by school districts. Signed into law in July, the measure mandates:

• Six hours of training for school board members on their financial-oversight responsibilities;

• An internal audit function within each district to examine financial practices on an ongoing basis;

• Committees formed by local school boards to both manage the selection of the district’s external auditor and to review financial reports;

• Use of a competitive bidding process by each district to pick audit firms; and

• Formal responses by school boards whenever audits raise questions

Auditing school districts on a regular basis hasn’t been part of the comptroller’s job description in New York for 20 years. That began to change 18 months ago, when accusations arose about expenses made by a former administrator in Roslyn, a 3,300-student system in an affluent Long Island community.

The resulting audit described what, by many accounts, is the largest school fraud case in U.S. history. Then-Superintendent Frank A. Tassone, one of his assistant superintendents, and a clerk allegedly used district money to buy millions of dollars worth of furniture, jewelry, pet supplies, and other items. ("Superintendent of Wealthy District Charged in Embezzlement Scandal," July 14, 2004.)

In addition, a district vendor has been charged, as has the assistant superintendent’s son, and an official with the accounting firm that the Roslyn schools used. Prosecutors say the outside auditor actually helped cover up the embezzlement. The firm, which has since gone out of business, had done work in about 50 Long Island systems.

All five defendants pleaded not guilty at their arraignments.

Mr. Hevesi blames the Roslyn school board for what he calls a “complete breakdown” of financial stewardship. Until the scandal broke, board members didn’t get regular budget reports, his office says, and when questions were first raised about possible improprieties, they left it to the superintendent to handle the matter.

“When it comes to government agencies and private institutions, if no one’s watching, there will be a dramatic increase in mismanagement and corruption,” the comptroller said.

Mr. Hevesi has found that Roslyn isn’t the only district where such oversight has been lacking. Since June of last year, he has dispatched auditors to 25 other Long Island systems, and, more recently, to another 20 districts elsewhere in the state.

Crimes have been alleged in some of the districts. In Hempstead, a 7,000-student Long Island district plagued by leadership turmoil, prosecutors say a vendor allegedly bribed a school board member to get a contract. A district administrator in the 2,900-student Mineola system, also on Long Island, has pleaded guilty to taking bribes.

Nickels and Dimes?

For the most part, though, the 16 audits completed so far reveal little wrongdoing. Instead, what they show are a lack of clear policies and practices for monitoring such expenditures as credit-card charges, cellphone usage, and business travel.

Leon J. Campo, the deputy superintendent of the 8,000-student East Meadow district, said some expenses questioned in the comptroller’s audit of his district were for coffee and bagels for staff training. The problem, said Mr. Campo, was that some documents didn’t show who attended such events or their purpose.

“In some areas, the auditors made some excellent recommendations,” he said. But, he added, “they never put in context that we manage more than a quarter-billion dollars in taxpayer money while commenting on items that weren’t exactly earth-shattering in terms of the dollar amount.”

Similarly, the 5,400-student Baldwin district got criticized in its audit for failing to include itemized receipts with some expense reports for business meals. In a statement when the audit came out, school board President James Scannell said the report “seems designed to make some minor procedural issues seem larger.”

Others say they don’t begrudge being slapped on the wrist. In the 3,700-student Lawrence district, which asked to be audited, the comptroller’s office found purchase records that lacked documentation, and learned that a central-office staff member was doing double duty as the district treasurer responsible for having checks cut.

While the report found no instances of fraud, Frank Parise, the president of the Lawrence school board, said it pointed out weaknesses. “If we’ve made some mistakes,” he said, “then let’s correct them, for crying out loud.”

Since receiving the auditor’s report, Lawrence has created a separate treasurer’s position and hired an external claims auditor who reviews purchase invoices and reports to the school board.

“We’re part-time board members and not there 40 or 50 hours a week running the day-to-day operations of the district,” Mr. Parise said. “So we have to find better ways to interact with the people who do run the district, so if questions come up, we know about it.”

District leaders statewide are getting a lesson is how to do that. In signing off on $5.8 million in additional annual funding for Mr. Hevesi to hire more auditors, the state legislature approved new requirements meant to ensure better oversight of local school finances.

All newly elected and re-elected school board members must get six hours of training on district fiscal management. All boards must create special committees whose job it is to monitor spending. And all districts must have an internal auditor responsible for assessing financial practices.

New York isn’t the only state where problems in a few districts have had statewide repercussions. In 2003, Colorado passed measures to improve school boards’ oversight of district budgeting after a case of fraud in one district and of mismanagement in another.

Said Vody Herrmann, the school finance director at the Colorado Department of Education: “None of us were tracking it, because it was a local-control issue, until it became a problem, and then it became a state issue.”

Vol. 25, Issue 09, Pages 1,24

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