Audit Report on the Oversight of the Financial Operations of the Bedford Stuyvesant New Beginnings Charter School

Executive Summary

The objective of this audit was to determine whether the Bedford Stuyvesant New Beginnings Charter School (BSNBCS) exercised adequate oversight over its fiscal affairs; whether it maintained a system of internal controls sufficient to ensure that funds were appropriately expended, authorized, valid, and reasonable; whether transactions were accurately recorded and reported; and if potential conflicts of interest and related party transactions were adequately disclosed and approved.

BSNBCS was granted a provisional charter by the New York State Board of Regents on January 12, 2010, for a term of five years, renewable by the New York State Board of Regents.  In late 2014, the school’s application for renewal was approved by the New York City Department of Education (DOE), its authorizer, and in January 2015, the BSNBCS charter renewal was voted on and approved by the Board of Regents for a term of three and one-half years.

BSNBCS is overseen by a Board of Trustees (the Board), which is made up of eight unpaid volunteers.  During the 2012–2013 school year (September through June), BSNBCS had an enrollment of 328 students in grades K-5.  For the 2013-2014 school year, BSNBCS had an enrollment of 436 students in grades K-6, having added an additional grade that year.  According to BSNBCS’s certified financial statements, the school had total revenues of $5.71 million in FY 2013, which included $4.77 million (84 percent) in per-pupil revenue.  However, BSNBCS’s total expenses for that same year were $5.76 million, which resulted in the school ending the year with a net deficit of $588,368.  In FY 2014, BSNBCS had total revenues of $7.16 million, which included $6.59 million (92 percent) in per-pupil revenue, and total expenses of $6.74 million, ending the fiscal year with a net surplus of $418,343.  The increase in per pupil revenue in FY 2014 over FY 2013 was due to the increase in enrollment with the addition of grade 6 in FY 2014.

Prior to the approval of its Charter by DOE, in 2009 BSNBCS entered into a consulting agreement with Antares Venture Solutions, LLC (Antares, LLC), which required Antares LLC’s president and chief operating officer to serve as BSNBCS’s Executive Director, responsible for overseeing the major operations of the school.  He served in that position from the school’s opening in September 2010 through June 30, 2014.  A new Executive Director was hired by BSNBCS as of July 7, 2014, who was an employee of the school.  In that capacity, the new Executive Director was responsible for overseeing the major operations of the school under the direction of the BSNBCS Board.

Audit Findings and Conclusions 

Although the audit concluded that following a period where BSNBCS’s financial records showed the school operating with a significant deficit, the Board’s active oversight of the school’s financial operations facilitated improvement in its financial condition during the audit scope period, it also found that the Board did not act prudently in certain fiscal matters, that the school’s controls over its financial operations were not consistently followed, and that certain expenditures were made in violation of applicable rules and procedures.  These weaknesses increased the risk of imprudent expenditures of school funds.

In a review of a sample of 192 expenditures for FYs 2013 and 2014, the audit found that BSNBCS had adequate documentary support for 184 of the expenditures (96 percent) and that these expenditures appeared to be for valid business purposes.  However, the audit also disclosed a number of instances where the school failed to comply with its own procedures as well as its Charter agreement and bylaws, including that:

• BSNBCS lacked contracts, detailed scope of services, detailed invoices, project plans, and evidence of the landlord’s approval to sufficiently support $1.66 million in reported construction costs for work reportedly performed between FY 2011 and FY2014.
• BSNBCS did not have adequate controls over cash receipts from its school lunch, afterschool and fundraising programs, amounting to at least $97,000 during FYs 2013 and 2014, to provide assurance that all cash was properly accounted for.
• BSNBCS did not consistently maintain a balance of $70,000 in its escrow account in FY 2013.
• Some of BSNBCS’ Board members did not submit the required Financial Disclosure Reports by the deadline August 1^st for FYs 2013 and 2014.

A number of the deficiencies disclosed by the audit occurred during the period of time that the school was managed by the former Executive Director.  In response to some of our audit findings, the current Executive Director has identified certain steps that have been taken to address some of the deficiencies disclosed by the audit.  Nevertheless, our findings reveal that further improvements are still necessary. 

Audit Recommendations

To address these issues, the audit makes 19 recommendations, including the following:

• The BSNBCS Board should ensure that all contracts, especially those for building construction and alterations, are in writing and signed and dated by the Head of School. Further, all such contracts should be approved by the Board and evidence of such approval should be maintained.
• BSNBCS should ensure that when it plans to undertake any alterations of its leased premises, that it submits to the landlord: (a) a statement of the work proposed to be done; (b) an estimate of the cost thereof; and (c) detailed plans and specifications. Also, it should ensure that it obtains the landlord’s written consent prior to undertaking any changes other than normal or routine repairs and maintenance.
• BSNBCS should ensure that it implements adequate cash controls, segregates the duties for handling cash, and properly accounts for cash payments collected from parent for afterschool programs, fundraising, and other school-related activities.
• BSNBCS should ensure that it continues to maintain the minimum required balance of no less than $70,000 in its escrow account in accordance with its charter agreement. 

Agency Response

BSNBCS officials generally agreed with 14 of the audit’s 19 recommendations.  In response to four of these recommendations, BSNBCS officials stated that the school agreed with and had adopted them as its practice; in response to 10 of the recommendations, BSNBCS officials stated the school agreed with them but contended that most were not necessary because of prior changes in the school’s practices or other factors, which they maintained were not adequately considered by the auditors.  BSNBCS officials disagreed with the remaining five recommendations pertaining to ensuring that payments for goods and services are adequately supported and the maintenance of student files.