OFFICE

OF THE

NEW YORK STATE COMPTROLLER D IVISION OF LOCAL GOVERNMENT & SCHOOL ACCOUNTABILITY

Riverhead Charter School

Fiscal Monitoring, Leave Accruals and Information Technology
Report of Examination
Period Covered: July 1, 2010 December 31, 2011 2012M-164

Thomas P. DiNapoli

Table of Contents

Page AUTHORITY LETTER 2

EXECUTIVE SUMMARY

INTRODUCTION Background Objective Scope and Methodology Comments of School Ofcials and Corrective Action

5 5 5 6 6

FISCAL MONITORING Annual Budget Financial Reports Recommendations

7 7 8 9

LEAVE ACCRUALS Recommendations

11 14

USER ACCESS TO THE FINANCIAL SOFTWARE Recommendations

15 16

APPENDIX APPENDIX APPENDIX APPENDIX

A B C D

Response From School Ofcials Audit Methodology and Standards How to Obtain Additional Copies of the Report Local Regional Ofce Listing

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State of New York Ofce of the State Comptroller

Division of Local Government and School Accountability December 2012 Dear School Ofcials: A top priority of the Ofce of the State Comptroller is to help school ofcials manage government resources efciently and effectively and, by so doing, provide accountability for tax dollars spent to support School operations. The Comptroller oversees the scal affairs of public schools statewide, as well as compliance with relevant statutes and observance of good business practices. This scal oversight is accomplished, in part, through our audits, which identify opportunities for improving operations and School Board governance. Audits also can identify strategies to reduce costs and to strengthen controls intended to safeguard school assets. Following is a report of our audit of Riverhead Charter School, entitled Fiscal Monitoring, Leave Accruals and Information Technology. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the State Comptrollers authority as set forth in Section 2854 of the Education Law. This audits results and recommendations are resources for school ofcials to use in effectively managing operations and in meeting the expectations of taxpayers, students and their parents. If you have questions about this report, please feel free to contact the local regional ofce for your county, as listed at the end of this report. Respectfully submitted,

Ofce of the State Comptroller Division of Local Government and School Accountability

OFFICE OF THE NEW YORK STATE COMPTROLLER

State of New York

Ofce of the State Comptroller EXECUTIVE SUMMARY

A charter school is a public school nanced by local, State and Federal resources that is not under the control of the local school board and is governed under Education Law Article 56. The Riverhead Charter School (School) is located in the Town of Riverhead and is governed by the Board of Trustees (Board), which comprises seven members. The Board is responsible for the general management and control of the Schools nancial and educational affairs. The Principal is the chief executive ofcer and is responsible, along with other administrative staff, for the day-to-day management of the School under the direction of the Board. The Director of Finance and Operations (Director) is the chief accounting ofcer and is responsible for maintaining custody of, depositing, and disbursing School funds, maintaining the nancial records, and preparing the monthly and annual nancial reports. Charter schools have fewer legal operational requirements than traditional public schools. Most of the regulations for a charter school are contained in the entitys by-laws, charter agreement, and the scal/ management plans, which are part of the charter school application.1 A charter school is required to set both nancial and academic goals, and the renewal of the charter every ve years is dependent on the school meeting these goals. The Schools current charter was renewed in April 2009 and was effective July 1, 2009. The Schools 2010-11 scal year operating expenditures totaled approximately $3.5 million. These expenses were funded primarily with revenues derived from billing the resident school districts for resident pupils and from certain State and Federal aid attributable to these pupils. The School had approximately 260 enrolled students and 40 employees as of June 30, 2011. Scope and Objective The objective of our audit was to determine whether the Board provided adequate oversight of the Schools nancial operations and to assess the internal controls over leave accruals and access to the nancial software for the period July 1, 2010 to December 31, 2011. Our audit addressed the following related questions: Has the Board appropriately monitored the Schools annual budget and nancial activities? Have School employees received and used leave benets in accordance with the Schools policy, contracts, and/or collective bargaining agreements?

____________________
1

The Schools charter is authorized by the New York State Board of Regents.

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Are access controls over the nancial software application appropriately designed and operating effectively?

Audit Results The Boards inadequate monitoring of nancial operations resulted in budget errors, inaccurate leave accruals and payments, and an increased risk of unauthorized access to the Schools nancial system. The Board did not approve the 2011-12 annual budget by June 1, 2011 as required, and the Director did not make any amendments to the budget to reect variances in revenues and expenditures during the year. We found discrepancies among the scal year 2011-12 budget submitted to the New York State Education Department (SED), the Board-approved budget, and budgetary amounts in the Schools budget-to-actual report. Further, the Board did not receive and review quarterly balance sheets, budget-to-actual reports, or monthly cash receipts reports. We also found that four actual revenue items totaling $56,343 and six actual expenditure items totaling $42,739 were not in the budget for the 2010-11 scal year. Without receiving the information it needs for properly monitoring and amending the budget, the Board cannot make informed nancial decisions in the Schools best interest. Additionally, leave accrual balances maintained by the payroll clerk were not reviewed for accuracy or reconciled to leave balances on employees pay stubs after processing by the Schools payroll vendor. As a result, the sick leave balances for the six employees in our sample were all either overstated (by a total of 19.5 hours) or understated (by a total of 77 hours), and the vacation leave of three of those employees was overstated by a total of 72 hours. We also found one employee was overpaid $570 for unused vacation leave. Further, the Schools records were not sufcient for us to conrm the accuracy of the Principals leave accruals. The lack of accurate accrual records and adequate oversight of the leave accrual system is a signicant internal control weakness. As a result, the School has paid employees for leave time to which they are not entitled and continues to be at risk of making these errors. Finally, we found that the Schools nancial software application has one user account and does not require the use of a password. The user account is a default administrator account which has powerful capabilities such as adding new users, changing users access rights, and controlling all aspects of the nancial software. This account is used by the Director of Operations and Finance, an account clerk, and the Schools external accounting rm; further, one computer is located in a generally accessible room and, if left on, could potentially allow anyone to access the nancial application. Lastly, administrative rights to the nancial system should be limited to authorized personnel who are not involved in the Schools nancial operations. As a result of these control deciencies, the nancial system is vulnerable to unauthorized use and there is an increased risk of inappropriate transactions that may not be detected. Comments of School Ofcials The results of our audit and recommendations have been discussed with School ofcials and their comments, which appear in Appendix A, have been considered in preparing this report. School ofcials generally agreed with our recommendations and indicated they have taken or plan to take corrective action.

OFFICE OF THE NEW YORK STATE COMPTROLLER

Introduction
Background A charter school is a public school nanced by local, State and Federal resources that is not under the control of the local school board and is governed under Education Law Article 56. The Riverhead Charter School (School) is located in the Town of Riverhead and is governed by the Board of Trustees (Board), which comprises seven members. The Board is responsible for the general management and control of the Schools nancial and educational affairs. This responsibility includes adopting a timely budget and monitoring the Schools nancial operations. The Principal is the chief executive ofcer of the School and is responsible, along with other administrative staff, for the day-to-day management of the School under the direction of the Board. The Director of Finance and Operations (Director) is the chief accounting ofcer and is responsible for maintaining custody of, depositing, and disbursing School funds, maintaining the nancial records, and preparing the monthly and annual nancial reports for Board review. The Director is also responsible for making budget amendments throughout the year, based on budget-to-actual reports, and submitting the amendments for Board approval. The payroll clerk, under the direction of the Director, is responsible for performing all payroll functions including maintaining leave accrual balances. Charter schools have fewer legal operational requirements than traditional public schools. Most of the regulations for a charter school are contained in the entitys by-laws, charter agreement, and the scal/ management plans, which are part of the charter school application.2 A charter school is required to set both nancial and academic goals, and the renewal of the charter every ve years is dependent on the school meeting these goals. The Schools current charter was renewed in April 2009, effective July 1, 2009. The Schools 2010-11 scal year operating expenditures totaled approximately $3.5 million. These expenses were funded primarily with revenues derived from billing the resident school districts for resident pupils and from certain State and Federal aid attributable to these pupils. The School had approximately 260 enrolled students and 40 employees as of June 30, 2011. Objective The objective of our audit was to determine whether the Board provided adequate oversight of the Schools nancial operations and to assess the internal controls over leave accruals and access ____________________
2

The Schools charter is authorized by the New York State Board of Regents.

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to the nancial software. Our audit addressed the following related questions: Has the Board appropriately monitored the Schools annual budget and nancial activities? Have School employees received and used leave benets in accordance with the School's policy, contracts, and/or collective bargaining agreements? Are access controls over the nancial software application appropriately designed and operating effectively?

Scope and Methodology

We evaluated Board oversight, examined the use and recording of leave benets, and reviewed access controls to the nancial software for the period July 1, 2010 to December 31, 2011. 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 are included in Appendix B of this report.

Comments of School Ofcials and Corrective Action

The results of our audit and recommendations have been discussed with School ofcials and their comments, which appear in Appendix A, have been considered in preparing this report. School ofcials generally agreed with our recommendations and indicated they have taken or plan to take corrective action. The Board has the responsibility to initiate corrective action. We encourage the Board to prepare a plan of action that addresses the recommendations in this report, and to forward the plan to our ofce within 90 days. For more information on preparing and ling your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make this plan available for public review in the Schools administrative ofce.

OFFICE OF THE NEW YORK STATE COMPTROLLER

Fiscal Monitoring
The Board is responsible for managing and overseeing the Schools overall scal affairs. This responsibility includes establishing a system of internal controls to provide reasonable assurance that resources are properly safeguarded. Effective policies and procedures help guide specic areas of scal operations, including the adoption of a timely budget and continuous monitoring of budgeted versus actual revenues and expenditures. Any amendments to the budgets must be approved by the Board and noted in the meeting minutes. Complete and accurate monthly reports provide essential nancial information the Board can use to monitor the Schools nancial condition and compliance with the adopted budget. The Schools charter contains internal nancial control policies and procedures that outline the Boards scal oversight responsibilities. These include approving the annual budget by June 1 of the immediately preceding scal year, approving any amendments to the budget, comparing year-to-date revenues and expenditures to the budget, and reviewing signicant variations on a quarterly basis. The Board is also supposed to receive and review a detailed reporting of asset, liability, revenue and expense accounts on a quarterly basis and review all cash receipts monthly, including a comparison of amounts received to the budget. The Board did not approve the 2011-12 annual budget by June 1, 2011 as required, and the Director did not make any amendments to the budget to reect variances in revenues and expenditures during the year. We found inconsistencies among the scal year 201112 budget submitted to the New York State Education Department (SED), the Board-approved budget, and the amounts in the Schools budget-to-actual report dated December 31, 2011. Further, the Board did not receive and review quarterly balance sheets, monthly budgetto-actual reports, or monthly cash receipts reports. Without receiving the information it needs for properly monitoring and amending the budget, the Board cannot make informed nancial decisions. Annual Budget The Board is responsible for adopting realistic, structurally balanced annual operating budgets. Effective budgetary controls limit expenditures to the specic purposes and amounts authorized by the Board, including any budget amendments. The Schools charter contains various nancial policies and procedures that outline the Boards budgeting responsibilities. The Board and the Principal, as head of the school, are required to provide scal oversight, including establishing policies and procedures for managing the Schools nances. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 7 7

The Boards meeting minutes showed that the budget for the 2011-12 year was approved at the June 28, 2011 meeting, one month after the required date. Further, the minutes had no details of budget revenues or expenses, and there was no copy of the budget attached. The Director does not make any amendments to the budget to reect the variances in revenues and expenditures during the year, and told us that she monitors the bottom line without making any adjustments to individual expenditure lines. Therefore, the Board does not have sufcient information to monitor the budget or determine whether it is structurally balanced. We found inconsistencies between the scal year 2011-12 budget, submitted with the 2010-11 annual report to SED in July 2011, and the 2011-12 budget that School ofcials told us was approved by the Board. In addition, we reviewed a budget-to-actual report dated December 31, 2011 and found that the budgeted amounts for the scal year also varied from the Board-adopted budget. There was no evidence that the Board approved amendments to the budget. Table 1: Fiscal Year 2011-12 Budget Inconsistencies
Board-Approved Revenues Expenditures
a

Submitted to SED $4,058,209 $4,047,974

Budget at 12/31/11a $4,056,104 $4,055,134

$4,096,906 $4,093,614

These amounts refer to the budget for the entire scal year, as shown in the Schools budget-to-actual report dated December 31, 2011.

Further, the budget-to-actual report for the 2010-11 scal year included four actual revenue items totaling $56,343 and six actual expenditure items totaling $42,739 that were not budgeted. These included routine items such as interest earned, bank charges, and bonuses. School ofcials did not have an explanation for these budget omissions. Although the School is currently in good nancial condition, this does not diminish the importance of the Board adopting timely, realistic budgets, monitoring the adopted budget, and amending it as needed. Financial Reports It is essential that the Board receive regular nancial reports from the Director to fulll its responsibility of monitoring nancial operations. The Board should routinely review reports of budget status, amounts received and disbursed during the month, and totals for balance sheet categories. The Schools policy states that the Director shall prepare monthly balance sheets and statements of activity and present these nancial statements to the Board each quarter for its review. These statements are to include a detailed reporting of asset, liability, revenue and 8 OFFICE OF THE NEW YORK STATE COMPTROLLER

expense categories, and a comparison between year-to-date actual and year-to-date budget data. Monthly budget status reports enable the Board to identify and discuss signicant variations and determine whether budget amendments may be necessary. In addition, the policy requires the Board to review all cash receipts monthly and compare amounts received to the budget. Our review of Board meeting minutes found that the nancial reports provided to the Board contained only the Schools bank account balances, year-to-date receivables (including delinquent accounts), and student enrollment numbers. The Board did not receive quarterly balance sheets and statements of activity detailing asset, liability, revenue, and expense categories, and did not receive a report of cash receipts comparing amounts received to the budget. The lack of this critical information precludes the Board from properly monitoring the Schools nances. We randomly selected the month of February 2011 to determine whether cash receipts3 were deposited and accounted for, and found no exceptions. We also randomly selected two months bank statements (September 2010 and April 2011) to determine whether wire transfers were properly authorized and supported and for valid School purposes. There were four wire transfers in September 2010 for loan payments totaling $103,069 and two transfers in April 2011 totaling $51,534. All transfers were properly authorized and supported and for valid School purposes. Although we found no exceptions, when the Board is not provided with periodic nancial and budget-to-actual reports, it cannot properly monitor the Schools scal operations. Therefore, Board members cannot be assured that the Schools funds are expended in the manner intended. Recommendations 1. The Board should approve the budget by June 1 of the previous scal year and maintain a copy of the approved budget with the minutes. 2. The Director should prepare, and the Board should review and approve, any necessary changes and/or amendments to the budget. These approved changes and/or amendments should be noted in the minutes. 3. The Board and Director should follow the nancial control policies contained in the Schools charter. The Director should prepare and the Board should review monthly balance sheets, ____________________
3

The cash receipts for that month totaled $538,289, with tuition accounting for $483,649 (90 percent).

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statements of activity, budget-to-actual status of revenues and expenditures, and cash receipts reports. Reports provided should be noted in the minutes and copies attached.

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OFFICE OF THE NEW YORK STATE COMPTROLLER

Leave Accruals
Leave accruals represent time off earned by employees. The accumulation of leave time is driven by collective bargaining agreements, individual employment contracts, and/or Boardapproved policies, which should clearly stipulate each employees entitlement to leave benets. A good system of internal controls ensures that employee leave accruals are granted in accordance with applicable employment contract provisions and that records are kept of each employees time off to ensure accuracy. Periodic independent reviews of leave time accrual records and balances throughout the year provide an additional control to help ensure that employees receive and use the correct leave to which they are entitled. When there is more than one recordkeeping system for example, manual payroll records and system-generated payroll balances a periodic reconciliation of the two records can verify that all leave accruals and usages are recorded and the balances agree. The School uses a payroll company to process its payroll. The School has three classications of employees in relation to paid leave benets: Twelve-month, full-time, administrative employees Instructional staff Principal.

Twelve-month, full-time administrative employee leave benets are dened in the Schools employee handbook. These employees are entitled to 12, 15, or 20 vacation days a year based on their years of employment. During our audit period there were four 12-month full-time regular employees who were entitled to the minimum of 12 vacation days a year. According to the employee handbook, vacation time is accrued at 3.693 hours per biweekly pay period and is earned on the last calendar day of each month. If vacation time is not used within the calendar year it is earned, the employee may accrue up to a year and a half of vacation days. Upon separation from the School, an employee with unused vacation time may receive payment for the accrued time at his or her current base rate of pay for up to one years accrual. In addition, 12-month, full-time administrative employees earn two personal days and eight sick days each year. Unused personal days can be carried over from one year to the next as accumulated sick days. The maximum number of sick and personal days that may be carried over is a combined 70 days a year. Employees will not be paid for unused personal or sick days upon separation. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 11 11

Leave benets for the Schools instructional staff are dened in a collective bargaining agreement. Instructional staff earn nine paid sick leave days and three paid personal days a year. Unused personal days may be rolled over to the following school year as accumulated sick days, which may be used in addition to the employees annual sick leave entitlement for that year. Instructional staff do not earn any vacation time. The Principals leave benets are outlined in her employment contract, which allows for leave benets to be awarded in accordance with the Riverhead Charter School Teachers contract. However, if the Principal does not use all her personal days, they do not roll over to the subsequent year. In addition, the Principal is entitled to three weeks of vacation during the summer recess. If the Principal does not use all vacation days from the school calendar year, she can use vacation time during the summer recess. School policy requires that employee time sheets be maintained daily, signed by the employee, approved by a supervisor, and forwarded to the payroll clerk at the end of the payroll period. The policy also requires that employee use of accrued leave be recorded, accounted for, and maintained by the payroll clerk, but does not require review or reconciliation of balances. All employees, with the exception of the Principal and Director, submit signed time sheets to the payroll clerk, showing the hours worked and any leave time used for the pay period. The Principal reviews and signs each time sheet. The payroll clerk summarizes the hours worked and leave taken for each employee, and the Director reviews this summary sheet and releases the payroll for submission to the payroll company for processing. Each individual employee paycheck stub includes the employees leave accrual balances, but there is no leave accrual balance report provided with the biweekly payroll. The payroll clerk maintains a separate spreadsheet with employees leave balances and enters the sick, personal, and vacation hours taken for each pay period. At the beginning of each School year, the payroll clerk prepares a schedule for sick, personal, and vacation accruals. These accruals and any adjustments made, due to unused personal time being rolled over to sick time, are added to the leave balances. However, no one reviews the report or adjustments maintained by the payroll clerk for accuracy or reconciles this schedule to the balances recorded on the employees paycheck stub. We selected all ve employees, including the Principal and Director, entitled to vacation time during our audit period and tested the accuracy of their sick, personal, and vacation leave accruals. In addition, we selected two teachers, one with the highest sick leave 12 OFFICE OF THE NEW YORK STATE COMPTROLLER

balance and the other with the lowest, for the last pay period in our audit period. We compared the employee timesheets to the payroll summary sheet prepared by the payroll clerk, the payroll register generated by the payroll system, and the leave balances maintained by the payroll clerk. We could not conrm the accuracy of the Principals leave accruals because the Schools records were not sufcient to calculate her leave balances. For the remaining six employees, sick leave balances were inaccurate: three had more sick time than they were entitled to and three had less. Two of the six employees personal leave balances were more than they were entitled to. Of the four employees in our sample who were entitled to vacation leave, three had more vacation time than they were entitled to. Table 2 details the difference between the Schools leave balances and the balances we calculated for the six employees:
Table 2: Leave Balances (Hours) for Audit Period School Records OSC Calculation Overstatement/(Understatement) Sick Personal Vacation Sick Personal Vacation Sick Personal Vacation Leave Leave Leave Leave Leave Leave Leave Leave Leave 97 8 38 107 8 6 (10) 0 32 302 16 224 294 0 200 8 16 24 74 8 121 78 8 105 (4) 0 16 42 16 98 38.5 8 98 3.5 8 0 408 24 N/A 471 24 N/A (63) 0 N/A 8 24 N/A 0 24 N/A 8 0 N/A

Employee 1 2 3 4 5a 6a
a

These employees were not entitled to vacation leave.

In addition, two employees received termination payments for unused vacation time during our audit period. Because the Schools vacation leave accruals were not accurate, one employee was overpaid $570 for unused vacation time.4 Although the School paid the other employee for the correct maximum of 96 hours allowed by the employee handbook, it used an incorrect daily pay rate of $119.23 instead of the correct rate of $115.39. The Schools record of this employees unused vacation leave also was incorrect, showing a balance of 121 hours whereas the actual balance was 105 hours. The lack of accurate accrual records and adequate oversight of the leave accrual system is a signicant internal control weakness. As a result, the School has paid employees for leave time to which they are not entitled and continues to be at risk of making these errors.

____________________
4

This employee received a termination payment of $677 on December 30, 2011, for 38 hours of unused vacation leave. However, the employees last day of employment was October 11, 2011, at which time he had six hours of unused vacation time; therefore, his payment should have been $107.

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Recommendations

4. The Board should establish written procedures to address the maintenance of leave time records and ensure that accurate information for time accruals is maintained, monitored, in accordance with appropriate contracts and/or policy, and periodically reconciled. 5. Payments for unused leave time should be made only after proper approval and verication of accrual balances based on adequate supporting records. 6. The Board and School ofcials should review and correct all leave records. 7. The Board should ensure that the incorrect payments identied in this report, as well as any other overpayments identied by the Schools review, are recovered.

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User Access to the Financial Software

The Board is responsible for establishing and implementing internal controls over access to nancial software applications. To control access, computer systems and applications need a process to identify and establish relationships between the user and the application. Administrative rights which allow powerful capabilities such as adding new users, changing users access rights, and having control over all aspects of the Schools nancial software should be limited. Pre-installed default accounts, which give users administrative rights, should be disabled or renamed by authorized IT personnel. Financial software applications should include sufcient controls to protect School data, such as the ability to establish separate user accounts requiring unique passwords, and users should have only the minimum access necessary to perform their day-to-day duties. The nancial software administrator should not be involved in the Schools nancial operations. If it is not possible to segregate these responsibilities, managerial oversight can help ensure accuracy of the nancial data. Periodic review of audit logs (automated trails of user activity) and void/deletion reports (indicating voided transactions and deleted data) are ways to ensure that only authorized users have access and are performing only those functions they need for doing their jobs. The Schools nancial software application has one user account and does not require the use of a password. The user account identier (ID) is ADMIN, a default administrator account, which allows anyone to enter data after accessing the application. The nancial application is installed on two computers: a desktop computer in the boardroom of the Administration Building and the laptop computer used by the Director of Operations and Finance. Although the boardroom computer is password-protected at the network level requiring a user to rst sign onto the network using a unique password once on the network, a user can access the software application using just the shared default ID. We were told that users include the Director of Operations and Finance, an account clerk, and the Schools external accounting rm. Given the boardroom location, which is used for meetings, there is a risk that this computer could remain connected to the network during the day, potentially enabling others to access the nancial software through the shared default account ID. Because all users in the nancial software application use the same user account that does not require a password and gives them administrative rights, the system is vulnerable to unauthorized use. As a result, there is an increased risk that inappropriate transactions could be initiated and not be detected. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 15 15

Recommendations

8. Users of the nancial software should have their own unique user IDs and passwords. 9. The administrator for the nancial software should be someone who is not involved in the Schools nancial operations.

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APPENDIX A RESPONSE FROM SCHOOL OFFICIALS

The School ofcials response to this audit can be found on the following pages.

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APPENDIX B AUDIT METHODOLOGY AND STANDARDS

Our overall goal was to assess the adequacy of the internal controls put in place by ofcials to safeguard School assets. In order to accomplish this, we performed an initial assessment of School operations so that we could design our audit to focus on those areas most at risk. Our initial assessment included evaluations of the following areas: general governance, nancial condition, Board oversight, cash receipts, payroll and personal services, cash disbursements, purchasing, capital assets and inventories, and information technology. During the initial assessment, we interviewed School ofcials and employees, performed limited tests of transactions, and reviewed pertinent documents such as adopted policies and procedures, Board minutes, and nancial records and reports. After reviewing the information gathered during our initial assessment, we determined where weaknesses existed, and evaluated those weaknesses for inherent control risks. We then decided upon the reported objectives and scope by selecting for audit those areas most at risk. We selected Board oversight, leave accruals, and information technology for further audit testing. Our audit included the following steps: We reviewed the Schools nancial internal control policies and procedures contained in its charter to determine the Boards scal oversight responsibilities. We reviewed the Board minutes and nancial reports contained in the Board minutes for the period July 1, 2010 to December 31, 2011 to determine what reports and nancial information were provided to the Board. We reviewed the annual budget for scal years 2010-11 and 2011-12. We reviewed the Schools 2010 annual report to the New York State Education Department; specically, the 2011-12 budget submitted with that report. We compared this budget to the Board-approved budget. We reviewed budget-to-actual reports for the periods July 1, 2010 to June 30, 2011 and July 1, 2011 to December 31, 2011. Using a random sample generator we selected the month of February 2011 and veried that all cash receipts were properly deposited and recorded in that month. Using a random sample generator we selected two months (September 2010 and April 2011) and veried all wire transfers were properly authorized, supported, and for valid school purposes in those two months. We interviewed the Director and the payroll clerk to gain an understanding of the payroll process and procedures. We reviewed the employee handbook, the collective bargaining agreement with the Riverhead Charter School Employees Association, and individual employee contracts to determine employee leave benets. OFFICE OF THE NEW YORK STATE COMPTROLLER

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We selected all ve full-time, 12-month employees and two teachers (those with the highest sick leave balance and lowest sick leave balance, respectively, at the last payroll period in the audit period) to test the accuracy of the leave accruals. We reviewed payments to two employees who left School employment during the audit period and received payouts for unused vacation. We reviewed School policies related to computer use and information technology (IT). We interviewed the Director and the consultant in charge of IT to gain an understanding of the procedures and controls over IT. We tested user access and passwords to the nancial application for vulnerability. We traced the voided/deleted checks for the period July 1, 2010 to June 30, 2011 to the physical checks. We randomly selected September 2011 and reviewed the audit trail report looking for input activity outside normal business hours.

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

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APPENDIX C HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

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

Ofce of the State Comptroller Public Information Ofce 110 State Street, 15th Floor Albany, New York 12236 (518) 474-4015 http://www.osc.state.ny.us/localgov/

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APPENDIX D OFFICE OF THE STATE COMPTROLLER DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
Andrew A. SanFilippo, Executive Deputy Comptroller Steven J. Hancox, Deputy Comptroller Nathaalie N. Carey, Assistant Comptroller

BINGHAMTON REGIONAL OFFICE H. Todd Eames, Chief Examiner Ofce of the State Comptroller State Ofce Building - Suite 1702 44 Hawley Street Binghamton, New York 13901-4417 (607) 721-8306 Fax (607) 721-8313 Email: Muni-Binghamton@osc.state.ny.us Serving: Broome, Chenango, Cortland, Delaware, Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties

NEWBURGH REGIONAL OFFICE Christopher Ellis, Chief Examiner Ofce of the State Comptroller 33 Airport Center Drive, Suite 103 New Windsor, New York 12553-4725 (845) 567-0858 Fax (845) 567-0080 Email: Muni-Newburgh@osc.state.ny.us Serving: Columbia, Dutchess, Greene, Orange, Putnam, Rockland, Ulster, Westchester Counties

BUFFALO REGIONAL OFFICE Robert Meller, Chief Examiner Ofce of the State Comptroller 295 Main Street, Suite 1032 Buffalo, New York 14203-2510 (716) 847-3647 Fax (716) 847-3643 Email: Muni-Buffalo@osc.state.ny.us Serving: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Niagara, Orleans, Wyoming Counties

ROCHESTER REGIONAL OFFICE Edward V. Grant, Jr., Chief Examiner Ofce of the State Comptroller The Powers Building 16 West Main Street Suite 522 Rochester, New York 14614-1608 (585) 454-2460 Fax (585) 454-3545 Email: Muni-Rochester@osc.state.ny.us Serving: Cayuga, Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties

GLENS FALLS REGIONAL OFFICE Jeffrey P. Leonard, Chief Examiner Ofce of the State Comptroller One Broad Street Plaza Glens Falls, New York 12801-4396 (518) 793-0057 Fax (518) 793-5797 Email: Muni-GlensFalls@osc.state.ny.us Serving: Albany, Clinton, Essex, Franklin, Fulton, Hamilton, Montgomery, Rensselaer, Saratoga, Schenectady, Warren, Washington Counties

SYRACUSE REGIONAL OFFICE Rebecca Wilcox, Chief Examiner Ofce of the State Comptroller State Ofce Building, Room 409 333 E. Washington Street Syracuse, New York 13202-1428 (315) 428-4192 Fax (315) 426-2119 Email: Muni-Syracuse@osc.state.ny.us Serving: Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, St. Lawrence Counties

HAUPPAUGE REGIONAL OFFICE Ira McCracken, Chief Examiner Ofce of the State Comptroller NYS Ofce Building, Room 3A10 Veterans Memorial Highway Hauppauge, New York 11788-5533 (631) 952-6534 Fax (631) 952-6530 Email: Muni-Hauppauge@osc.state.ny.us Serving: Nassau and Suffolk Counties

STATEWIDE AUDITS Ann C. Singer, Chief Examiner State Ofce Building - Suite 1702 44 Hawley Street Binghamton, New York 13901-4417 (607) 721-8306 Fax (607) 721-8313

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY

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