Audit Report on the Financial Practices of the Department of Education’s District 2 General School Funds

Executive Summary

The New York City Department of Education (DOE) has established a Standard Operating Procedure (SOP) to provide minimum standards for the administration of General School Funds (GSF). GSF bank accounts are established by individual schools to ensure that accountability, fiscal integrity, and proper accounting procedures are in place for monies received from students, school organizations, student book sales, and other fundraising activities to support extracurricular and co-curricular student activities.

According to the GSF SOP, each school must:

• Establish a checking account to maintain the GSF monies collected;
• Comply with the New York City Department of Finance’s (DOF’s) requirements when opening and closing bank accounts;
• Assign at least three full-time DOE staff members as authorized signatories;
• Assign a full-time DOE staff member, other than the school’s principal, to be the treasurer of the GSF account;
• Maintain cash journal(s) that document GSF receipts and expenditures ;
• Refrain from co-mingling Parent Association or Parent Teacher Association funds, sunshine funds, or personal funds with funds held in the GSF account ;
• Perform monthly bank reconciliations ; and
• Report each account’s reconciled balance (i.e., book balance), as of June 30th of each fiscal year, into DOE’s online Bank Account Survey .

In addition, schools are required to comply with NYC Comptroller’s directives, including Directive #1 – Principles of Internal Control, Directive #11 – Cash Accountability and Control, and Directive #27 – Fiduciary Accounts – Procedures for Requesting, Controlling and Monitoring.

DOE’s School District 2, comprising 118 schools, reported $3.6 million and $3.2 million held in GSF accounts as of June 30, 2018 and 2019, respectively.

In this audit, we determined whether the schools within School District 2 administered GSF accounts in accordance with DOE’s SOP and with the relevant Comptroller’s Directives.

Audit Findings and Conclusions

We found that a majority of schools located within School District 2 did not comply with DOE’s SOP for the administration of GSF accounts and/or the relevant Comptroller’s Directives. Based on our review of the documentation that DOE provided and the survey responses we received from 98 schools, we found that 76 schools had at least one noncompliance issue involving 100 GSF bank accounts.

Additionally, we found that DOE lacks adequate oversight over the 179 “agency held bank accounts” that District 2 schools maintained during our audit scope period, 7 of which were entirely unknown to DOE’s Banking Unit prior to the audit. District 2 schools held these 179 bank accounts either as GSF accounts or as school lunch accounts during the period our audit covered.

Noncompliance with established procedures by school officials and inadequate oversight by DOE reduces accountability and places the funds the schools collected at increased risk of misappropriation and embezzlement.

In another matter, it appears that one school is managing a bank account on behalf of the Parent Teacher Association (PTA). However, the management of such accounts is not under DOE’s jurisdiction and using DOE’s resources to manage these funds is an inappropriate use of resources.

Audit Recommendations

To address these issues, we make 15 recommendations, including that DOE should:

• Ensure that schools open and close all GSF bank accounts through DOE’s Banking Unit and DOF, and that they provide DOE’s Banking Unit with the June 30th balance that DOE needs to complete its listing of all such accounts with the Comptroller’s Office under Comptroller’s Directive #27.
• Ensure that DOE’s Banking Unit reports complete information concerning all schools’ GSF bank accounts to the Comptroller’s Bureau of Accountancy (BOA) as required by Comptroller’s Directive #27.
• Conduct an internal audit of the account activities for the seven GSF bank accounts that were not opened through DOE’s Banking Unit or recorded in DOE’s online Bank Account Survey to determine whether the school officials properly administered the GSF accounts in other respects and the extent to which they complied with other provisions of the GSF SOP.
• Ensure that schools meet all the signatory requirements, including 1) the designation of a minimum of three full-time staff members as signatories for each GSF bank account, one of whom must be the principal, and none of whom can be the treasurer; and 2) dual signatures on each check.
• Ensure that school officials enforce segregation of duties in overseeing GSF account activities, handling cash receipts and disbursements, and record keeping.

Agency Response

In its response, DOE generally agreed with 13 of 15 recommendations; partially agreed with 1 recommendation, disagreeing with 1 part of it, which concerns closing dormant bank accounts; and disagreed with 1 recommendation, specifically, that DOE conduct an internal audit of GSF bank accounts that were not properly administered. In response to that recommendation, DOE stated that it disagreed with our finding that seven specific GSF bank accounts “were not opened through the DOE’s Banking Unit or recorded in the Bank Account Survey.” In particular, DOE asserted that two of the seven accounts were opened outside the audit scope period, without disputing the substance of the finding, and that school staff had misidentified two other accounts. However, DOE provided no documentation to support either of those assertions. DOE further stated, “Given constraints on DOE resources due to the COVID-19 pandemic, the DOE cannot commit to doing audits of these accounts at this time.” After carefully considering DOE’s response, we find no basis to change any of our findings or recommendations.