Audit Report on the New York City School Construction Authority’s Administration of Its “Other Funds Account”

Executive Summary

The School Construction Authority (SCA) is a public benefit corporation established in 1988 by the New York State Legislature under the New York State Public Authorities Law and is responsible for the design, construction, improvement, rehabilitation and repair of the New York City (City) public schools[1].   The SCA’s operations are primarily funded by budget appropriations made by the City through its capital budget process under the direction of the City Office of Management and Budget.

In addition, pursuant to Public Authorities Law §§1725-1748, the SCA is authorized to apply for and/or accept any gifts, grants, loans, property, financial aid, or other aid in any form from any instrumentality of the federal government, New York State, and the City or from any other source, provided that the SCA expends such funds for purposes specified in the Public Authorities Law.  The SCA periodically receives additional funds from sources other than the City’s capital budget appropriations.  To maintain these funds, the SCA established a miscellaneous account, known as the “Other Funds Account.”[2]

The Public Authorities Law provides that funds maintained by the SCA that do not need to be immediately expended, should be invested in accordance with §11 of the General Municipal Law, without regard to the source of those funds.  The SCA must comply with all applicable internal controls and accountability directives issued by the Office of the Comptroller.

The objective of this audit was to determine if the SCA properly administered its Other Funds Account in accordance with applicable laws, rules and regulations.

Audit Findings and Conclusions

The audit found that the SCA lacked sufficient internal controls over the administration of the Other Funds Account and that as a result, the financial records related to that account, which held in excess of $100 million during our audit period, were inconsistent and inaccurate.  These control deficiencies could impair the SCA’s ability to make decisions on the appropriate use and allocation of the funds.  In addition, the audit found that the SCA did not consistently follow the investment requirements of the Public Authorities Law and that as a result, it maintained in excess of $100 million in a checking account that earned minimal interest, which could have been invested at a higher rate of return.

Audit Recommendations

The SCA should:

1. Implement controls to ensure that it accurately and consistently records the funding source classifications and use designations (dedicated or discretionary) of Other Funds Account funds in all of the SCA’s financial records. Such controls should include:
   1. Use of a comprehensive automated and reliable accounting system capable of consistently tracking all of the funds allocated to it, including funds utilized from both the Other Funds Account and its City capital budget funded account;
   2. Use of a comprehensive automated reliable accounting system to create financial and other reports in order to ensure consistent and accurate information, including identification of the funding source categories;
   3. Documentation of the basis for the changes in fund categories and ensure accuracy and consistency in the identification of funding sources in all Other Funds Account’s financial records and related reports;
   4. Monthly reviews by supervisory personnel of cash sub-ledgers, and general ledger to ensure that data is accurate, complete, consistent and adequately supported;
   5. Accurate reporting of information in the Other Funds Account quarterly reports to ensure the funding source categories and funding designations are appropriate and consistently reported.
2. Deposit of the funds maintained in the Other Funds Account not needed for immediate use in an investment account in accordance with the General Municipal Law.

SCA Response

In its response, the SCA agreed with the audit’s recommendations and stated that it had begun to implement most of the recommendations prior to the commencement of the City Comptroller’s audit based on reports it received from the SCA Office of Inspector General and Ernst & Young.  In addition, the SCA disagreed with some of the audit’s findings, which are discussed in the relevant sections of this report.  However, after a careful review, we found that the SCA’s arguments provide no basis to alter the audit’s findings and conclusions.

[1] Public Authorities Law, Article 8, Title 6, §§1725 et seq., the New York City School Construction Authority Act.

[2] Prior to 2016, the Other Funds Account was referred to by the SCA as the Miscellaneous Checking Account.