brighter choice

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DIVISIONOF LOCAL GOVERNMENT

& SCHOOL ACCOUNTABILITY

O F F I C E O F T H E N E W YO R K ST A T E C O M P T R O L L E R

Report of Examination

Period Covered:

July 1, 2009 April 30, 2011

2011M-168

Brighter Choice Charter

School For Boys

Financial Operations

Thomas P. DiNapoli


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11DIVISIONOF LOCAL GOVERNMENTAND SCHOOLACCOUNTABILITY

Page

AUTHORITY LETTER 2

EXECUTIVE SUMMARY 3

INTRODUCTION 6

Background 6

Objective 6

Scope and Methodology 7

Comments of School Officials and Corrective Action 8

CLAIMS PROCESSING 9

Recommendations 10

RESIDENT SCHOOL DISTRICT BILLINGS 11

APPENDIX A Response From School Officials 13

APPENDIX B OSCs Comment on the Schools Response 17APPENDIX C Audit Methodology and Standards 18

APPENDIX D How to Obtain Additional Copies of the Report 20

APPENDIX E Local Regional Office Listing 21

Table of Contents


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2 OFFICEOFTHE NEW YORK STATE COMPTROLLER2

State of New York

Office of the State Comptroller

Division of Local Government

and School Accountability

November 2011

Dear School Officials:

A top priority of the Office of the State Comptroller is to help School officials manage government

resources efficiently and effectively and, by so doing, provide accountability for tax dollars spent to

support School operations. The Comptroller oversees the fiscal affairs of public Schools statewide,

as well as compliance with relevant statutes and observance of good business practices. This fiscal

oversight is accomplished, in part, through our audits, which identify opportunities for improving

operations and School board governance. Audits also can identify strategies to reduce costs and to

strengthen controls intended to safeguard School assets.

Following is a report of our audit of Brighter Choice Charter School for Boys entitled Financial

Operations. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the

State Comptrollers authority as set forth in Section 2854 of the Education Law.

This audits results and recommendations are resources for School officials to use in effectively

managing operations and in meeting the expectations of taxpayers, students, and their parents. If you

have questions about this report, please feel free to contact the local regional office for your county,

as listed at the end of this report.

Respectfully submitted,

Office of the State ComptrollerDivision of Local Government

and School Accountability


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Office of the State ComptrollerState of New York

EXECUTIVE SUMMARY

A charter school is a public school financed by local, State and Federal resources that is not under the

control of the local school board and is governed under Education Law Article 56. The Brighter Choice

Charter School (School) is located in the City of Albany and is governed by the Board of Trustees

(Board), which comprises five members. The Board is responsible for the general management and

control of the Schools financial and educational affairs. The Principal of the School (Principal) is the

chief executive officer of the School and is responsible, along with other administrative staff, for the

day-to-day management of the School under the direction of the Board. The Director of Finance andOperations (Director) is the chief accounting officer and is responsible for maintaining custody of,

depositing, and disbursing School funds; maintaining the financial records; and preparing the monthly

and annual financial reports.

Charter schools have fewer legal operational requirements than traditional public schools. Most of the

regulations for a charter school are contained in the entitys by-laws, charter agreement, and the fiscal/

management plans, which are part of the charter school application. A charter school is required to set

both financial and academic goals and the renewal of the charter every five years is dependent on the

school meeting these goals. The Schools current charter was renewed in December 2010.

The Schools 2010-11 fiscal year operating expenditures totaled approximately $3.5 million. These

expenses were funded primarily with revenues derived from billing the resident school districts for

resident pupils and from certain State and Federal aid attributable to these pupils.

Scope and Objective

Our overall goal was to assess the Schools financial operations. To accomplish this, we evaluated

selected areas by performing the following survey procedures:

General governance We reviewed the Schools charter, by-laws, and Board policies and

found that the Board has adopted adequate financial policies regarding purchasing, cashreceipts and disbursements, payroll, conflicts of interest and/or code of ethics, investments,

and appointment of Board members.

Financial oversight and condition We found that generally the Board exercises sufficient

oversight of school financial operations. The Business office prepares and presents various

financial reports to the Board for review.


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Purchasing and cash disbursements We reviewed 51 purchases totaling $329,017 that the

School made during our audit period to determine whether the purchases were properly

approved by either the Principal and/or the Director, there was adequate verification that the

goods and services were received, and quotes were obtained for applicable purchases. We

did not find any exceptions with the 51 purchases we reviewed, and we determined that the

Schools purchasing practices effectively enabled the School to acquire goods and services in

accordance with its procurement policy.

Payroll and personnel services We reviewed salary payments for two payrolls during our

scope period and bonus payments paid to employees during our scope period. We did not note

any issues with the salary or bonus payments made to employees.

After evaluating these areas, it appears that School officials have put in place adequate controls and,

therefore, limited risk exists in these areas. As such we determined that an audit of these areas was not

necessary.

We also reviewed claims processing and resident school district billings and found that, while overall

the internal controls appeared adequate, risk existed in these areas. Therefore, we examined the Schoolscurrent related processes for July 1, 2009, to April 30, 2011. Our audit addressed the following related

questions:

Is the claim processing function designed to ensure accurate, appropriate, and timely

payments?

Are resident school district billings accurate and reasonable?

Audit Results

We found that the School paid claims totaling $329,017 before they were audited. The failure to auditclaims prior to payment resulted in the School overpaying two vendors by $8,319, and it increases the

risk that the School could pay for goods that are not received, services that are not rendered, and claims

that are not legitimate, reasonable, or for proper School purposes. Also, the School paid six claims

totaling $85,215, of 51 claims examined, later than the 60-day time period that its purchasing policy

required claims to be paid within. For example, the School paid a $15,462 invoice for health insurance

93 days after the invoice was dated. By not paying claims within the timelines outlined in the policy,

the School risks missing vendor discounts associated with timely bill payment and/or risks incurring

late fees for untimely payments.

When a student attends a charter school, the students resident school district must pay tuition to thecharter school for that student. We reviewed four resident school district bills from the 2009-10 and

2010-11 fiscal years that the School sent to its students resident school districts to determine whether

the students included on the bills had actually attended the School and whether the four bills included

the appropriate number of students. We found that the resident school district bills were accurate.

We also randomly selected 13 of the approximately 250 students enrolled in the School1 and examined

the Schools records to determine whether the School maintained adequate documentation of the

1As of April 30, 2011


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students addresses and proof of their residence in each of their resident school districts. We did not

find any discrepancies with the documentation maintained for these 13 students. Furthermore, at the

end of each fiscal year, the Director completes a reconciliation of amounts billed and collected. We

reviewed this reconciliation for the 2009-10 school year and did not note any discrepancies.

Comments of School Officials

The results of our audit and recommendations have been discussed with School officials and their

comments, which appear in Appendix A, have been considered in preparing this report. Except as

specified in Appendix A, School officials generally agreed with our recommendations and indicated

they planned to take corrective action. Appendix B includes our comment on an issue raised in the

Schools response letter.


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Background

Introduction

Objective

A charter school is a public school financed by local, State, and

Federal resources that is not under the control of the local school

board. Charter schools have fewer legal operational requirements

than traditional public schools. Most of the regulations for charterschools are contained in the entitys by-laws, charter agreement, and

fiscal/financial management plans, which are part of the charter school

application. The charter agreement must be completed immediately

after the application is approved. Charter schools are required to

set both financial and academic goals. The renewal of its charter

every five years is dependent on the school meeting these goals. The

Brighter Choice Charter School for Boys (School) current charter

was renewed in December 2010.

The School is located in the City of Albany. The School is governedby the Board of Trustees (Board), which comprises five members.

The Board is responsible for the general management and control of

the Schools financial and educational affairs. The Principal of the

School (Principal) is the chief executive officer of the School and

is responsible, along with other administrative staff, for the day-to-

day management of the School under the direction of the Board. The

Director of Finance and Operations (Director) is the chief accounting

officer and is responsible for maintaining custody of, depositing,

and disbursing School funds; maintaining the financial records; and

preparing the monthly and annual financial reports. The Schools

Finance Manager electronically prepares the Schools accountingrecords and maintains them on the accrual basis of accounting.

There were approximately 250 students attending the School during

the 2010-11 fiscal year. The School has a work force of approximately

40 full- and part-time employees, and its budgeted expenses for the

2010-11 fiscal year were approximately $3.5 million, which were

funded primarily with Albany City School District tuition payments,

State and Federal aid, and donations.

The objective of our audit was to examine the Schools financial

operations. Our audit addressed the areas of claims processing and

resident district billings. More specifically, our audit addressed the

following related questions:

Is the claim processing function designed to ensure accurate,

appropriate, and timely payments?

Are resident school district billings accurate and reasonable?


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Scope and

Methodology

We examined the Schools financial operations for the period July 1,

2009, to April 30, 2011. To accomplish this, we evaluated selected

areas by performing the following survey procedures:

General governance We reviewed the Schools charter,

by-laws, and Board policies and found that the Board has

adopted adequate financial policies regarding purchasing,

cash receipts and disbursements, payroll, conflicts of interest

and/or code of ethics, investments, and appointment of Board

members.

Financial oversight and condition We found that generally

the Board exercises sufficient oversight of school financial

operations. The Business office prepares and presents various

financial reports to the Board for review.

Purchasing and cash disbursements We reviewed 51

purchases totaling $329,017 that the School made during ouraudit period to determine whether the purchases were properly

approved by either the Principal and/or the Director, there

was adequate verification that the goods and services were

received, and quotes were obtained for applicable purchases.

We did not find any exceptions with the 51 purchases we

reviewed, and we determined that the Schools purchasing

practices effectively enabled the School to acquire goods and

services in accordance with its procurement policy.

Payroll and personnel services We reviewed salary

payments for two payrolls during our scope period and bonuspayments paid to employees during our scope period. We did

not note any issues with the salary or bonus payments made

to employees.

After evaluating these areas, it appears that School officials have put

in place adequate controls and, therefore, limited risk exists in these

areas. As such we determined that an audit of these areas was not

necessary.

We also reviewed claims processing, purchasing, payroll, and residentschool district billings and found that, while overall the internal

controls appeared adequate, risk existed in these areas. Therefore, we

examined the Schools current related processes for the period July 1,

2009, to April 30, 2011.

We conducted our audit in accordance with generally accepted

government auditing standards (GAGAS). More information on


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such standards and the methodology used in performing this audit is

included in Appendix C of this report.

The results of our audit and recommendations have been discussed

with School officials and their comments, which appear in

Appendix A, have been considered in preparing this report. Except

as specified in Appendix A, School officials generally agreed with

our recommendations and indicated they planned to take corrective

action. Appendix B includes our comment on an issue raised in the

Schools response letter.

The Board has the responsibility to initiate corrective action. We

encourage the Board to prepare a plan of action that addresses the

recommendations in this report and forward the plan to our office

within 90 days. For more information on preparing and filing your

CAP, please refer to our brochure, Responding to an OSC Audit

Report, which you received with the draft audit report. We encourage

the Board to make this plan available for public review in the SchoolSecretarys office.

Comments of School

Officials and Corrective

Action


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Claims Processing

The claims auditing process is an integral part of the Schools internal

controls because it includes procedures designed to ensure that the

School pays only legal and proper vendor claims. An important

aspect of this internal control function is the review and approvalof claims prior to payment. An effective audit of claims helps

determine whether all necessary approvals are met by checking for

proper signatures; verifying the accuracy of claimed amounts; and

ensuring that all necessary documentation (e.g., signed receiving

slips) is attached to claims. To ensure that disbursements are for valid

expenses, or for goods or services that have actually been received,

claims must be audited and approved prior to payment. Also, it is

important for School officials to ensure that claims are approved and

paid by the due date to avoid late fees and to take advantage of any

discounts offered for timely payment of claims.

The School contracts with an external accountant to assist it in its

bookkeeping function. One of the external accountants duties

includes weekly and monthly reviews of claims. However, the

external accountant reviews claims after the claims have already

been paid, which increases the risk of that the School may make

inaccurate and/or inappropriate payments. In addition, the Schools

financial policies and procedures manual states that the School,

whenever practical, will pay invoices within 60 days of the date

of the statement. However, the School may miss out on discounts or

may incur late fees when paying invoices after 60 days. We reviewed51 claims2 totaling $329,017 and found the following exceptions:

All 51 claims were paid prior to an audit by the external

accountant.

The School overpaid two vendors by a total of $8,319. The

School overpaid a textbook manufacturer by $5,288 due to

mistakenly interpreting the amounts listed on a statement, and

it overpaid a credit card company by $3,031 because claims

processing staff were not aware that a prior balance listed on

a credit card statement had been paid the previous month.

Six claims totaling $85,215 were not paid within 60 days.

For example, the School paid a $15,462 invoice for health

insurance 93 days after the invoice was dated.3

2 Refer to Appendix B for more information on the sample selection process.3 The School did not incur late fees for this late payment.


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The failure to audit claims prior to payment resulted in the School

overpaying two vendors by $8,319, and it increases the risk that the

School could pay for goods that are not received, services that are

not rendered, and claims that are not legitimate, reasonable, or for

proper School purposes. Furthermore, by not paying claims within

the timelines outlined in the policy, the School risks missing vendor

discounts associated with timely bill payment and/or risks incurring

late fees for untimely payments.

1. The Board should require the external accountant to perform a

comprehensive audit of claims prior to the claims being paid.

2. School officials should ensure that claims are paid within 60 days.

Recommendations


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Resident School District Billings

Education Law4 provides for the funding of charter schools operating

budgets. The public school district in which a student resides is

considered the students resident school district. A charter school

derives most of its operating revenues from the school district(s) inwhich its students reside. Charter schools are required to keep an

accurate and up-to-date attendance record of student enrollment and

report these data to the students resident school districts in a timely

manner. Based on enrollment, count, attendance or full-time equivalent

(FTE)5 attendance, a charter school bills the resident school districts

for providing services to the students enrolled in the charter school.

The resident school districts reimburse the charter school based on a

reimbursement amount established by the New York State Education

Department (SED). The School bills the resident school districts for

their students tuition in six installments during thefi

scal year.

We reviewed the final resident school district bills and two other

random resident school district bills from the 2009-10 and 2010-11

fiscal years to determine whether the students included on the bills

had actually attended the School and whether the four bills included

the appropriate number of students. We found that the resident school

district bills were accurate. The following chart shows the number of

students and amounts billed for each bill selected:

Bill DateNumber of

Students

Total Amount

BilledFebruary 4, 2010 233 $471,463

May 1, 2010 251 $504,313

September 1, 2010 261 $717,501

May 1, 2011 212 $505,612

There were approximately 250 students enrolled in the School as

of April 30, 2011. We randomly selected every 20th student6 listed

on the student roster, for a total of 13 students, and reviewed the

Schools records for these students to determine whether the School

maintained adequate documentation of the students addresses and

proof of their residence in each of their resident school districts. Wedid not find any discrepancies with the documentation maintained

for these 13 students. Furthermore, at the end of each fiscal year, the

4 Article 56, Section 28565 FTE is the decimal expression of the enrollment of a student in a charter school

compared to the length of the annual session of the charter school. A student who is

enrolled for the full school year has an FTE of 1.0, while a student who is enrolled

for only half of the school year has an FTE of 0.50.6 Refer to Appendix B for more information on the sample selection process.


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Director completes a reconciliation of amounts billed and collected.

We reviewed this reconciliation for the 2009-10 school year and did

not note any discrepancies.


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APPENDIX A

RESPONSE FROM SCHOOL OFFICIALS

The school officials response to this audit can be found on the following pages.


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SeeNote 1

Page 1


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APPENDIX B

OSCS COMMENT ON THE SCHOOLS RESPONSE

Note 1

We believe that having the external accountant review claims prior to payment would be a better

safety net and improve the checks and balances described in the process. During our audit testing,

we found that the School overpaid two vendors by $8,119. These errors were not discovered by the

existing process and identified in a timely fashion so that the School could initiate corrective action.


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APPENDIX C

AUDIT METHODOLOGY AND STANDARDS

The objective of our examination was to assess the Schools financial operations. To accomplish this,

we performed an initial assessment of the internal controls so that we could design our audit to focus

on those areas most at risk. Our initial assessment included evaluations of the following areas:financial oversight, control environment, cash receipts and disbursements, purchasing, payroll, and

information technology.

During the initial assessment, we interviewed appropriate School officials, performed limited tests

of transactions and reviewed pertinent documents such as the Schools charter, financial policies

and procedures manuals, Board minutes, and financial records and reports. In addition, we obtained

information directly from the computerized financial databases and then analyzed it electronically

using computer-assisted techniques. This approach provided us with additional information about the

Schools financial transactions as recorded in its databases. Further, we reviewed the Schools internal

controls and procedures over the computerized financial databases to help ensure that the information

produced by such systems was reliable.

After reviewing the information gathered during our initial assessment, we determined that controls

appeared to be adequate and limited risk existed in most of the financial areas we reviewed. We

then decided on the reported objective and scope by selecting for audit areas that appeared to have

additional controls in place. We selected claims processing, purchasing, payroll and resident school

district billings for further audit testing. To accomplish our audit objective and obtain valid audit

evidence, our procedures included the following steps:

We interviewed key personnel to gain an understanding of the Schools claims, purchasing,

payroll, and billing processes.

We selected 51 claims and purchases to review because they appeared to be high risk based

on their large dollar amounts, questionable vendor names, and actual items purchased. The

51 claims and purchases included 10 purchases that we reviewed during our planning phase,

23 purchases that the School made during the 2009-10 school year, 17 purchases that the

School made during the 2010-11 school year, and one additional claim that was processed on

a weekend.

We reviewed the 51 claims to determine if claims were audited prior to payment and whether

there were any duplicate or late payments.

We reviewed the 51 purchases to determine if the purchases met the Schools purchasing

guidelines for competitive bidding.

We reviewed two random bi-weekly payrolls, one each from the 2009-10 and 2010-11 fiscal

years, to ensure that all full-time employees were paid in accordance with provisions in their

contracts. We reviewed all employee contracts and examined the payroll register for these two

pay-periods to determine if the employees were paid according to their employment contracts.


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We reviewed all employee bonuses paid at the end of the 2009-10 fiscal year using the Schools

calculation rubric used to calculate bonuses and reconciled the calculated amounts with the

amounts shown on the payroll register.

We reviewed the final resident school district bills (May) and two other random resident

school district bills from each of the 2009-10 and 2010-11 fiscal years and determined that the

students billed for were actually School students. We also performed an analytic review of the

remaining bills to determine their reasonableness.

We reviewed the year-end resident school district billing reconciliation for the 2009-10 fiscal

year and determined its reasonableness.

We randomly selected every 20th student listed on the student roster (5 percent of the

approximately 250 students enrolled as of April 30, 2011) for the most recent resident school

district bill and determined whether the School maintained address verification for each

student to ensure that the correct resident school districts were being billed.

We conducted this performance audit in accordance with generally accepted government auditingstandards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient,

appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit

objective. We believe that the evidence obtained provides a reasonable basis for our findings and

conclusions based on our audit objective.


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APPENDIX D

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

To obtain copies of this report, write or visit our web page:


Public Information Office

110 State Street, 15th Floor

Albany, New York 12236

(518) 474-4015

http://www.osc.state.ny.us/localgov/


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BINGHAMTON REGIONAL OFFICE

H. Todd Eames, Chief Examiner


State Office Building - Suite 1702

44 Hawley Street

Binghamton, New York 13901-4417

(607) 721-8306 Fax (607) 721-8313

Email: [email protected]

Serving: Broome, Chenango, Cortland, Delaware,

Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties

BUFFALO REGIONAL OFFICE

Robert Meller, Chief Examiner


295 Main Street, Suite 1032

Buffalo, New York 14203-2510

(716) 847-3647 Fax (716) 847-3643


Serving: Allegany, Cattaraugus, Chautauqua, Erie ,

Genesee, Niagara, Orleans, Wyoming Counties

GLENS FALLS REGIONAL OFFICE

Jeffrey P. Leonard, Chief Examiner

Office of the State ComptrollerOne Broad Street Plaza

Glens Falls, New York 12801-4396

(518) 793-0057 Fax (518) 793-5797


Serving: Albany, Clinton, Essex, Franklin,

Fulton, Hamilton, Montgomery, Rensselaer,

Saratoga, Schenectady, Warren, Washington Counties

HAUPPAUGE REGIONAL OFFICE

Ira McCracken, Chief Examiner


NYS Office Building, Room 3A10

Veterans Memorial Highway

Hauppauge, New York 11788-5533

(631) 952-6534 Fax (631) 952-6530


Serving: Nassau and Suffolk Counties

NEWBURGH REGIONAL OFFICE

Christopher Ellis, Chief Examiner


33 Airport Center Drive, Suite 103

New Windsor, New York 12553-4725

(845) 567-0858 Fax (845) 567-0080


Serving: Columbia, Dutchess, Greene, Orange,

Putnam, Rockland, Ulster, Westchester Counties

ROCHESTER REGIONAL OFFICE

Edward V. Grant, Jr., Chief Examiner


The Powers Building

16 West Main Street Suite 522

Rochester, New York 14614-1608

(585) 454-2460 Fax (585) 454-3545


Serving: Cayuga, Chemung, Livingston, Monroe,

Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties

SYRACUSE REGIONAL OFFICE

Rebecca Wilcox, Chief Examiner

Office of the State ComptrollerState Office Building, Room 409

333 E. Washington Street

Syracuse, New York 13202-1428

(315) 428-4192 Fax (315) 426-2119


Serving: Herkimer, Jefferson, Lewis, Madison,

Oneida, Onondaga, Oswego, St. Lawrence Counties

STATEWIDE AND REGIONAL PROJECTS

Ann C. Singer, Chief Examiner

State Office Building - Suite 1702

44 Hawley Street

Binghamton, New York 13901-4417

(607) 721-8306 Fax (607) 721-8313

APPENDIX E

OFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENT

AND SCHOOL ACCOUNTABILITY

Steven J. Hancox, Deputy Comptroller

Nathaalie N. Carey, Assistant Comptroller

LOCAL REGIONAL OFFICE LISTING

brighter choice

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