Audit Report on the Department of Education’s Controls over the Small Item Payment Process of Its Schools within Children First Network 404

EXECUTIVE SUMMARY

The objective of this audit was to determine whether the New York City Department of Education (DOE) has adequate controls over Small Item Payment Process (SIPP) transactions processed by schools within Children First Network (CFN) 404 to ensure that payments were supported and represented allowable SIPP expenditures.

DOE provides primary and secondary education to over one million students, from prekindergarten to grade 12, in 32 school districts with over 1,800 schools, and employs approximately 75,000 teachers.  In addition, DOE employs non-pedagogical employees who assist in all aspects of maintaining, administering and operating the schools.  Prior to May 2015, DOE operated approximately 60 CFNs designed to provide schools throughout the City with instructional and operational support, including support regarding SIPPs.

DOE has established SIPPs to facilitate the purchase and payment of non-recurring Other Than Personal Service (OTPS) items of up to $5,000 for small incidental purchases or for the procurement of goods and services when either the purchase order (PO) or requisition method of purchase is not practical¹.   It can also be used to reimburse a DOE employee for the purchase of small over-the-counter items (emergency purchases) and any other business-related expense (e.g., travel).

During the period covered by this audit, the oversight entity for the sampled schools was CFN 404².   Starting in May 2015, CFNs were replaced by DOE Borough Field Support Centers (BFSCs), which officially began operations in July 2015.  Much like the CFNs, BFSCs provide integrated support to schools across areas of instruction and operations, including finance (which include SIPPs) and human resource support.

During Fiscal Year 2014, DOE’s schools spent approximately $24 million using SIPP transactions, of which $754,623 was spent by the 32 schools supported by CFN 404.  Of this amount, the five schools in the audit sample spent a total of $304,597 (40 percent) in SIPPs.

Audit Findings and Conclusion

This audit found that DOE has not implemented adequate controls over SIPP transactions processed by the five schools we sampled within CFN 404 to ensure that payments were adequately supported and that they were allowable SIPP expenditures.  The weaknesses we found affected approximately $79,200 (26 percent) of the $304,597 in SIPP expenditures at the five schools we sampled during the audit period.  We found insufficient reviews at the school and CFN levels to ensure that applicable procedures were followed.  We believe that these weaknesses contributed to the multiple deficiencies we identified, including unsupported SIPP payments; the inappropriate use of SIPPs; and lack of evidence that required bidding procedures were consistently followed.

While the amounts of the expenditures made on any one occasion are small ($5,000 or less),  the aggregate amounts expended through SIPPs system-wide throughout DOE was approximately $24 million.  Accordingly, weak controls and enforcement by DOE could potentially result in significant amounts of DOE funds being misspent.  Further, the weaknesses we found increase the risk that fraudulent or disallowed purchases may be made through SIPPs.

Audit Recommendations

Based on the audit we make 13 recommendations, including:

• DOE should ensure that the BFSCs review SIPP transactions prior to approval to confirm that SIPPs were appropriately used, that the transactions are adequately supported, and that they comply with DOE’s purchasing policies and procedures.
• DOE should ensure that the BFSCs conduct periodic reviews of the schools’ SIPP transactions and generate necessary reports to identify possible deficiencies, such as questionable patterns, trends, or excessive use of non-contracted vendors.
• DOE should ensure that the schools obtain and maintain adequate supporting documentation on file, including travel-related documentation, prior to processing and approving SIPP requests.
• DOE should ensure that bidding requirements are adhered to for all purchases meeting the dollar value thresholds, and that appropriate bidding documentation is maintained on file to evidence the bidding.
• DOE should ensure that split transactions are not processed and approved.

Agency Response

In its response, DOE generally agreed with the audit’s findings and agreed with eight of the audit’s thirteen recommendations.  DOE partially agreed with the remaining five recommendations pertaining to updating its School Leadership Team (SLT) regulations, using correct object codes, recouping payments for unsupported and disallowed SIPPs, using contracted vendors and adhering to DOE’s petty cash policy.