The Rochester City School District's payroll processes are disorganized, highly decentralized and not administered uniformly, resulting in errors that are costing taxpayers, according to an audit released today by State Comptroller Thomas P. DiNapoli. Auditors also found numerous problems with how the district managed its purchases.

"The Rochester City School District needs to substantially overhaul how it is managing payroll and purchasing of goods and services," DiNapoli said. "Although the dollar amounts of many of the errors found by auditors were small, the sheer number of mistakes and their potential total dollar value is cause for significant concern. The district has not implemented the controls and oversight procedures it needs to run a sound operation."

The Rochester City School District operates 52 schools with approximately 29,700 students and 6,978 employees. The district's budgeted appropriations for the 2016-17 fiscal year are approximately $865 million, which are funded primarily with state aid, aid from the city of Rochester and grants. Payroll payments totaled approximately $640.4 million for the district's 2014-15 and 2015-16 fiscal years.

DiNapoli's auditors reviewed salary and wage payments totaling $3.8 million made to 45 employees. They found incorrect or unsupported payments made to 41 (91 percent) of the employees in almost every type of payment made to them, including incorrect salary payments, retroactive payments and separation payments.

Auditors expanded their audit work to examine approximately 1,100 of these types of payroll payments. They identified errors in 97 percent of the additional payments tested. In total, they found more than $356,600 in incorrect or unsupported payments. The errors included several underpayments to employees as well.

Auditors also found 16 of the initial 45 employees examined received bonus payments ranging from $1,000 to $13,400, totaling $86,963. Ten of these payments were incorrectly calculated, by a total of $5,452. All were related to the State Education Department's "Teachers Incentive Fund" grant program.

DiNapoli's auditors reviewed 515 procurement card (p-card) purchases totaling approximately $396,000 and found deficiencies with 500 purchases (97 percent) totaling $384,313. This amount includes $293,279 in purchases in which the district failed to comply with statutory competitive bidding requirements.

In addition, auditors looked at purchase orders to 11 vendors totaling $1.5 million which were subject to competitive bidding requirements and found that the district did not bid four purchases totaling approximately $270,000. Auditors also examined 10 professional service providers who received payments totaling $7.8 million and found the district did not properly seek competition for contracts with six of them totaling $352,000. As a result, the district may have paid more than it needed to for its purchases of goods and services.

For the payroll process, DiNapoli recommended the district and its school board:

• Establish written procedures that designate specific responsibilities to the payroll department staff for the preparation and disbursement of payroll and related payments, to better centralize the payroll process;
• Develop adequate monitoring procedures to verify that all payroll-related payments are accurate, supported and made in accordance with written collective bargaining agreement, memorandums of agreement, board resolutions or individual employment contracts;
• Ensure that salaries are properly established, authorized, documented and reflected in the payroll system for payment; and
• Direct the district's attorney to review the identified overpayments to take appropriate action within the law to recover those funds. The board also should reimburse identified underpaid employees.

The Comptroller also made numerous recommendations for the district's procurement process, including:

• Revise the policy for use of p-cards for district purchases and require strict adherence to the updated safeguards;
• Require the claims auditor to comply with the p-card manual requirements to audit all p-card transactions and supporting documentation to be sure all policies were followed and that purchases were appropriate;
• Ensure that staff comply with competitive bidding requirements for all commodities that exceed, or aggregate to amounts that exceed, the statutory bidding thresholds; and
• Complete a thorough review of p-card transactions, alert supervisors when cardholders violate the district's policies and ensure that appropriate action is taken to address any violations.

District officials generally agreed with the audit's recommendations and indicated they planned to take corrective action. Their full response is included in the complete audit.

Read "Rochester City School District: Payroll and Procurement," or go to: http://www.osc.state.ny.us/localgov/audits/schools/2017/rochester.htm

For access to state and local government spending, public authority financial data and information on 130,000 state contracts, visit Open Book New York. The easy-to-use website was created to promote transparency in government and provide taxpayers with better access to financial data.