Audit Report on the Department of Education’s Controls over the Small Item Payment Process of its Schools within Children First Network 603

EXECUTIVE SUMMARY

The objective of this audit was to determine whether there were adequate controls over the Small Item Payment Process (SIPP) transactions processed by schools within Children First Network (CFN) 603 to ensure that payments were supported and represented allowable SIPP expenditures.

The New York City Department of Education (DOE) provides primary and secondary education to over one million students.  Prior to May 2015, DOE operated approximately 60 CFNs designed to provide schools throughout the City with instructional and operational support.  Starting in May 2015, CFNs were replaced by DOE Borough Field Support Centers (BFSCs).  Much like the CFNs, BFSCs assist schools with their instructional and operational efforts, including providing financial management and human resource support.

DOE has established SIPP to facilitate the purchase and payment of non-recurring Other Than Personal Service (OTPS) items that cost up to $5,000.  A SIPP transaction provides for the disbursement of funds to pay a vendor for small incidental purchases or for the procurement of goods and services when a purchase order (PO) is not practical.  It is also a mechanism that provides reimbursement to a DOE employee for the purchase of small over-the-counter items, as well as certain other small business-related expenses.

SIPPs are entered into DOE’s Financial Accounting Management Information System (FAMIS) database.  SIPP transactions of up to and including $500 are supposed to be approved by the designated approver at the school, usually a principal or assistant principal.  SIPP transactions of more than $500 and up to $2,500 must be approved at the school level by either a principal or assistant principal.  These payments are then routed through FAMIS for approval by a designated official at an oversight entity, which during the audit period was a CFN and which is now a BFSC.  SIPP transactions above $2,500 through $5,000 are required to be approved by the school, and then routed in FAMIS for approval by both the support entity (e.g., CFN 603 for our sampled schools) and by an official in DOE’s Division of Financial Operations (DFO).

During Fiscal Year 2014, DOE schools spent approximately $24 million using SIPP transactions, of which $614,634 was spent by the 24 schools supported by CFN 603.  Of this amount, the five schools in the audit sample spent a total of $388,604 (63 percent).

Audit Findings and Conclusions

This audit found weaknesses in DOE’s controls over SIPP transactions processed by the five schools we sampled from CFN 603.  Specifically, we found that 324 (78 percent) of the 414 sampled SIPP transactions had one or more deficiencies that affected $145,395 (75 percent) of the sampled expenditures during the audit period.

At all five of the sampled schools, the reviews at the school level were insufficient to ensure that applicable procedures were followed.  In addition, we found little evidence that CFN 603 officials ensured that adequate reviews or reconciliations of SIPP transactions of $500 or less were conducted.  As a result, we identified multiple deficiencies including split transactions (multiple individual purchases in amounts under the SIPP threshold from a vendor rather than a single purchase in order to avoid the more stringent reviews that would apply if one larger purchase was made); unsupported SIPP transactions; duplicate payments; the use of incorrect object codes; the inappropriate payment of sales tax; and a lack of evidence that required bidding procedures were consistently followed.  While the amount of the expenditure made on any one occasion was $5,000 or less, the aggregate amounts expended through SIPPs in the five sampled schools was $388,604.  Since DOE spent $24 million system-wide during Fiscal Year 2014, the weaknesses identified could result in a significant amount of improper expenditures.

Audit Recommendations

Based on our findings, we made 16 recommendations, including the following:

• DOE should ensure that split transactions are not approved or processed.

• DOE should ensure that the schools obtain and maintain adequate supporting documentation on file 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 support the bidding.

• DOE should ensure that duplicate transactions are not approved or processed.

• DOE should ensure that the correct object codes are used when generating a SIPP transaction.

• DOE should ensure that school employees use the appropriate sales tax exempt certificates to avoid paying New York State and City sales taxes for goods and services procured using SIPP money.  If a certificate is not used, the employee should not be reimbursed for the tax.

Agency Response

DOE generally agreed with the audit’s 16 recommendations but disagreed with the finding that a SIPP transaction for a reimbursement to a principal was not approved in accordance with DOE rules.  The full text of the DOE response is included as an addendum to this report.