District Delivers 'State of the Schools' Report
Budget Reforms, Recovery of Funds Tops Agenda
By Joe Scotchie
More than 100 people gathered at the East Hills School cafeteria to hear Board of Education members and Roslyn School District officials give a comprehensive update on the "state of the schools" as the board works toward a 2005-2006 budget.
Presentations were made by school board members serving on various committees and subcommittees and by David J. Helme, the interim superintendent of schools.
Helme admitted that when he came to Roslyn, he worried that both the staff and the public would be demoralized by the embezzlement scandal. Instead, he said, he has noticed in recent months, a "dramatic turnaround in the behavior of the board" along with the realization of the public that the district is "too precious to be squandered."
Claiming that the most immediate goal of the board is to provide a "solid budget" for 2005-2006, Helme listed numerous reforms that the board has undertaken in the past several months. They include payroll practices, purchasing practices, reductions in overall operating costs, plus reductions in "thousands of dollars" spent for food, gifts, dinners, and community events.
Helme added that the board has instituted a system of internal controls so that two or three people can't "control" the large and often complex district budget.
Furthermore, the district, Helme said, has recently gained over $500,000 in state aid that was due to it, but not received in the past because the proper paperwork wasn't completed.
In addition, the district has made reductions in the school lunch program. It has also eliminated the use of public funds for the mailing of holiday gifts and cards. Among other ideas, the board will review the current open campus practice.
"We won't be able to turn the place around in one year or two, but we sure as hell are going to try," Helme said.
Retrieving Lost Funds Also addressing financial concerns was Clifford Saffron who was elected to the board in a special election last fall. Saffron updated the audience on the district's efforts to recover money allegedly embezzled by former district employees.
Saffron said that following the arrest of Pamela Gluckin, a former assistant superintendent, the district was able to put $1 million in cash in escrow. The district is also litigating the rights for another $2.5 million to be returned to the district's coffers.
Saffron assured the audience that the district's attorney fees will "pale in comparison" to the reimbursements the board should be able to obtain for the district. Such monies should include those recovered from property owned by Ms. Gluckin and $300,000 that former superintendent Dr. Frank A. Tassone allegedly transferred from the district to a sibling's account. Saffron added that recovered funds from Dr. Tassone's accounts into escrow accounts should increase in the near future.
Saffron also mentioned possible legal action to be taken against both former board members and former assistant superintendents to recover even more funds. He said that once the report from State Comptroller Alan Hevesi's office comes out, there will probably be more legal action.
Judith Wilner, current board vice president, also updated the audience on budgetary matters. She noted that the Budget Advisory Committee had, in recent months, studied class sizes and actual enrollment, class sections, projected class sizes, and how buildings are utilized with an emphasis on duties performed by custodians and clerical workers.
Praising the work done by the Personnel & Transportation Subcommittees and by the Citizens Audit Advisory Committee, Ms. Wilner said that district residents will be "pleasantly surprised" by the 2005-2006 budget.
Maryanne Combs, one of the few board members remaining from the scandal era, reported on the Curriculum and Instruction Committee. That committee will continue to make sure the district meets regular New York State educational standards. The committee is also looking at both the Foreign Language program and the summer program to gauge their effectiveness and then decide whether to keep them in the upcoming budget.
During the question and answer period, Judi Winters, a longtime civic association leader in East Hills, asked the board not to forget about educational standards when plotting the district's financial future. In other words, Shakespeare is as important as dollars. Stanley Stern agreed with Ms. Winters, saying that it would be a "great disservice to only look at the financial aspect" of future budgets.
Other residents had questions about the budget surplus from last year and the competence of new district employees and those BOE members from the scandal era.
Representing the Village of Roslyn, Nolan Myerson, a trustee in that village, praised the board for doing an "astounding" and "phenomenal job" in getting the district back on its feet. He also worried about the "negative effects" of "painting kids with a broad brush" by not allowing high school students to do certain things they were allowed in the past.
Audit Describes 8 Years of Theft At L.I. Schools By BRUCE LAMBERT; PATRICK O'GILFOIL HEALY, IN ROSLYN, AND DAVID M. HERSZENHORN, IN NEW YORK CITY, CONTRIBUTED REPORTING FOR THIS ARTICLE. (NYT) Published: March 3, 2005
LINKFor eight years, the top officials of an affluent Long Island school district systematically plundered taxpayer funds, illegally diverting at least $11.2 million to themselves, relatives and cronies for an array of goods and services, from a 65-cent bagel to a $1,812-a-night hotel suite to a mortgage on a luxury home in Florida, a new state audit says.
The scandal, in Roslyn, N.Y., is the most pervasive such school fraud in the country, say officials from the National School Boards Association. The year-old case has already had repercussions in districts throughout New York State, where school officials and bookkeepers say they are paying closer attention to budgets and accounts, and state auditors have stepped up their scrutiny.
The report, issued yesterday by the state comptroller, Alan G. Hevesi, examines the district's records from 1996 to 2004, and it reveals far deeper and wider corruption than previously disclosed. It found losses of $3 million more than was estimated last spring, when the first allegations became public. It also documents and analyzes unauthorized spending and account manipulation well beyond what school officials and the district attorney had previously detailed.
Besides using district funds to cover $1.1 million in cash withdrawals on personal credit cards, district officials shopped extravagantly at taxpayers' expense, the records show. The purchases included $18,605 for artwork from Galerie Lassen on Maui in Hawaii, $14,033 for pet supplies, $19.95 for vitamins, $81,637 to repay a college loan, $3.05 for a latte and $4,045 to a company for such merchandise as a manicure and pedicure kit, a Sony shower radio and an Aquabot Ultra Pool Cleaner with remote control.
The losses went undetected for so long, officials have speculated, because of Roslyn residents' pride in the district's stellar academic achievements. The district, on Long Island's North Shore, has 3,300 students and a 95 percent graduation rate, and a healthy share of its graduates go off to Ivy League colleges every year. The superintendent at the time, Frank A. Tassone, also had impressed and charmed the school board and parents.
Criminal investigations have already led to grand larceny indictments of Dr. Tassone and the district's former business manager and a former clerk, all of whom have pleaded not guilty. Prosecutors said they were reviewing the latest findings and considering further charges.
Dr. Tassone's lawyer, Ed Jenks, said he had not seen the audit but argued that many expenses were legitimate. ''He was allowed one international trip a year,'' he said. ''It doesn't say in the contract whether he can take the Concorde or swim across the Atlantic.''
The audit also said there were 26 additional beneficiaries, and it hinted that sharing in the money might have tempered some district employees' enthusiasm for blowing the whistle. The auditors cautioned, however, that at least some of the beneficiaries might have been innocent recipients of gifts.
Those gifts were at the expense of taxpayers; the property tax for homeowners in Roslyn averages $9,700 a year. In four years, the district's tax levy rose by half, from $46 million in 2000 to $69 million in 2004.
''Taxpayers are furious, and they have a right to be furious,'' Mr. Hevesi said at a news conference in Garden City, N.Y., hours before making an unusual presentation of the audit to residents at the high school last night.
''We're going to clean this up,'' he said. ''We're going to put the systems in to make sure this never happens again.''
One indignant parent who turned out for Mr. Hevesi's briefing said she wanted everyone involved to be punished.
''The degree of the embezzlement is so massive, the scope and magnitude of this is horrific,'' said the parent, Jeannette Elsner, one of about 200 residents at the 7:30 p.m. meeting. ''It sickens me.''
The audit concluded that Dr. Tassone took a total of $2.4 million, and his former assistant superintendent for business, Pamela Gluckin, was responsible for $4.6 million in unauthorized spending. Ms. Gluckin's lawyer did not return a call seeking comment.
The audit specified items large and small and even farfetched. For example, the audit said, Ms. Gluckin used $935,831 in district money to pay the mortgages on three homes. But she also charged for the flood insurance for her Hamptons house and her $989 water bill in Bellmore.
The means varied. The audit said they included billing personal items to taxpayers, credit card fraud and fraudulent salary reports to the pension system that inflated retirement payments. More than $1 million in business contracts were awarded to friends and relatives with ''no record that the district received anything of value in return,'' the report said. A total of $549,129 went for illegal raises and bonuses and other benefits.
Taxpayers paid $549,120 for food and catering; $249,883 for computers and other electronic equipment; $160,171 for life, homeowner's, car and boat insurance policies; and $206,798 to buy or lease cars, including a BMW and a Jaguar.
The car payments were in addition to the $230,000 that Dr. Tassone was accused of taking before he resigned last year, a $17,200 annual car allowance and $42,000 for several years of parking in Manhattan, where he lived.
Taxpayers also covered: $37,385 in dry cleaning bills, $3,471 for cable television, $5,236 for Dr. Tassone's Christmas cards and overtime for a clerk to prepare them, 965 personal Federal Express deliveries, $20,686 for rugs and furniture, a $4,890 brunch for 40 at Pulse in Rockefeller Center, $45,700 for jewelry, $7,550 for tailoring and an unspecified $4,500 bill at the Mandalay Bay casino resort in Las Vegas. The district also paid for Sony Playstations and telephones in Colorado and Pennsylvania.
''I find this to be quite breathtaking and remarkable, one of a kind,'' Mr. Hevesi said at the news conference in the Garden City office of District Attorney Denis Dillon.
One startling revelation was that Dr. Tassone and Ms. Gluckin got the school district to pay not only for their personal credit card purchases but also for more than $1 million in cash withdrawals from automated teller machines. Dr. Tassone, who had 24 credit cards, averaged $700 in withdrawals a day for 20 months. In May 2002, he averaged $1,117 a day. Ms. Gluckin, who had 23 credit cards, averaged $1,270 a day in February 2002, according to the report.
The audit concludes that the corruption was enabled by an utter breakdown of the normal safeguards in the system. The school board failed its oversight duty to impose policies and procedures, it said. The administrators were perverting the system for their own profit, according to the report. The treasurer and internal staff auditor failed to do their jobs, and the external accounting firm missed what was happening and was itself involved in conflicts of interest, the report said.
The accountants, Miller, Lilly & Pearce, which also served 55 other districts and whose related firm sold financial software to 250 districts across the state, recently closed.
''No one was watching, and those who were supposed to be watching did not, for whatever reason,'' Mr. Hevesi said.
Since the Roslyn debacle, the comptroller has given seminars to school officials around the state and has also asked for $5 million to resume regular school audits, which ended two decades ago in a budget cut.
The seven-position Roslyn school board, which has four new members and a new president since district voters rebelled last year, has promised to follow all 27 of the state's recommendations. The board president, Stanley Stern, praised the comptroller yesterday for having ''done a great service.''
Perhaps most damning was that the school board covered up an early warning, the discovery three years ago that Ms. Gluckin had taken $223,000. The board allowed her to repay the money and quietly leave, without any report to the public, criminal sanctions or any further investigation.
The failure to take proper action then may preclude the school district from recovering any of the losses from its insurance carrier, the state report said. Assistant District Attorney Peter Mancuso said his office was pursuing forfeiture and restitution remedies.
As Mr. Hevesi neared the end of his listing of abuses at his news conference, he apologized for taking so long and said: ''It's almost therapeutic.''
Chart: ''A Look Inside Charges of School Fraud in Roslyn'' According to State Comptroller Alan G. Hevesi, Roslyn school administrators used at least $11.2 million in district funds for personal benefit. Here are the two who have been accused of stealing the most, and some purchases auditors say they made.
As taxes and spending rose . . .
Tax levy and total expenditures for Roslyn school district.
Graph tracks school district spending and tax levy from 1999 to 2004.
. . some might have been getting rich
Auditors claim these two administrators got away with at least this much money.
Pamela Gluckin Former assistant superintendent for business
$4,634,012
SOME EXAMPLES OF SPENDING Cash advances: $559,176
Mortgages: 935,831
Airline tickets: 63,075
Hotels: 30,158
Pet supplies: 14,033
Frank A. Tassone Former superintendent
$2,407,965
SOME EXAMPLES OF SPENDING Cash advances: $541,596
Airline tickets: 162,250
Hotels: 137,285
Tiffany & Co. jewelry: 16,300
Custom tailoring: 7,550
Chart: ''A Spending Spree'' A breakdown of the $11.2 million of Roslyn school funds that state officials say were misused. Circles are scaled by dollar amount.
PERSONAL CREDIT CARDS: $5,902,544
PRIVATE MORTGAGES AND LOANS: $1,137,939
HOME DEPOT: $609,000
SALARIES AND BENEFITS: $594,121
FOOD: $576,586
PAYMENTS TO GLUCKIN FAMILY COMPANIES: $255,537
COMPUTERS AND ELECTRONIC EQUIPMENT: $249,883
PRIVATE AUTOMOBILES: $206,798
INSURANCE PREMIUMS: $160,171
TRAVEL EXPENSES: $133,619
OTHER PERSONAL EXPENSES: $112,983
MISUSED DISTRICT FUNDS: $1,305,984
TOTAL: $11,245,165
(Source by New York State Comptroller's Office)(pg. B5)
Formula for Fleecing a School District? Spreading Cash Around, Audit Says
By MICHELLE O'DONNELL Published: March 3, 2005 New York Times
The formula for stealing $11.2 million from the Roslyn school district was simple: by compromising the district's accounting controls and giving bonuses to almost everyone who had oversight of the spending, two top officials were able to quietly embezzle the funds over eight years without triggering any alarms, according to a searing audit.
The audit of the district was released yesterday by State Comptroller Alan G. Hevesi. According to it, the scheme involved the former superintendent, Frank A. Tassone; the former business manager, Pamela Gluckin; and an accounting clerk, Debra Rigano, who is a niece of Ms. Gluckin. They have all been accused of grand larceny. Other employees who received the largess, which included unauthorized extra pay, might have been innocent recipients, Mr. Hevesi cautioned, but the criminal investigation is continuing.
More than half the money was embezzled in a scheme in which Dr. Tassone and Ms. Gluckin and nine of their family members and friends charged $5.9 million for personal items and cash advances on 74 personal credit cards, investigators said. Then Ms. Gluckin, who resigned in 2002, and Dr. Tassone, who resigned last June, used district checks to pay those bills, Mr. Hevesi said.
The audit found that Dr. Tassone and Ms. Gluckin would obtain cash advances on their credit cards at A.T.M.'s. Ms. Gluckin, whose salary and benefits in her final year were $87,250, charged $559,176 in cash advances to the district over six years. Dr. Tassone, who received a salary of $230,000, charged $541,596 to the district in cash advances.
Once the cash advances and the credit card charges - among them, for Tiffany and Tourneau jewelry, Coach leather acessories, carpet and furniture for him; and clothes from Nordstrom and Sears, electronic equipment, pet supplies and art and furniture for her - were executed, those amounts were submitted to the district, the audit said.
To pay those bills, district checks were sent directly to the card issuers. The audit found that the district's financial software could be easily manipulated and had fraud controls that had never been activated. Using a legitimate vendor account number, the name of the check's recipient would be changed from a vendor of school supplies to the creditors. After the check was issued, the name of the payee would be changed back in the computer records to the legitimate vendor to conceal the fraudulent payment, according to the audit.
For example, personal American Express payments totaling $1.49 million were paid under the vendor number of Sargent-Welch, the company that provided the district with laboratory supplies. Payments to Citibank totaling $896,730 were made under the vendor number of the Nassau County Board of Cooperative Educational Services, which provides special education programs.
Mr. Hevesi said that vulnerabilities in the district's financial software, Finance Manager, which is in use in 251 school districts in the state, allowed the officials to disguise their thefts as legitimate spending.
In a separate audit last month, he faulted the district's outside accounting firm, Miller, Lilly & Pearce, for "appallingly inadequate" audits.
When a budget category came close to its limit, the audit said, school officials were able to shift funds among accounts. Dr. Tassone had been granted unlimited authority by the school board to make those transfers even though state education regulations required the board to set limits on the amounts that can be transferred without board approval, according to the audit.
No check warrants - lists of payments awaiting approval by the district's internal claims auditor - were maintained. In fact, the audit found, the claims were barely reviewed by that auditor. The extent of the review by the internal auditor, an acquaintance of Dr. Tassone who received $6,200 in unexplained payments from the district, consisted of thumbing through and initialing the vouchers, the audit said.
The district's treasurer, who is the custodian of all district funds, rarely attended board meetings and infrequently reported on the budget, the audit said. Although state law requires that a district's checks are to be signed by the treasurer, in Roslyn, the checks were signed by Dr. Tassone's secretary.
Dr. Tassone and Ms. Gluckin consolidated their control over the district's finances by installing clerks responsible for monitoring both accounts payable and accounts receivable. Standard accounting practice is to separate those duties to prevent fraud, according to the audit.
Manhasset Audit Uncovers Pattern of Shoddy Work, Extensive Impropriety by Miller, Lilly & Pearce
Hevesi Makes Recommendations for School Districts
that Were Served by Miller, Lilly & Pearce LINKA second Comptroller's
audit of the work of the CPA Firm Miller, Lilly & Pearce found a continued pattern of substandard work and numerous violations of professional standards, New York State Comptroller Alan G. Hevesi said today. A
report of the CPA firm's service to the Roslyn School District released by Hevesi in January contained similar findings of sub par work and extensive impropriety by the firm.
The audit released today is part of the review of the Manhasset Union Free School District's finances, specifically the District's audit procurement procedures. A separate audit of the finances of the Manhasset School District will be completed in the coming months. Findings of the audit have been referred to the State Board for Public Accountancy for further investigation and disciplinary action; however, Miller, Lilly & Pearce recently announced to clients that it was closing.
"Miller, Lilly & Pearce failed to take even the basic steps to ensure that District funds were properly accounted for and safeguarded. The firm let the Manhasset taxpayers down," Hevesi said.
In a written response to the audit, President of the Manhasset Board of Education Thomas J. Maimone said "Your examination disclosed the poor quality of services, known only to them, that the District received from its external audits. We consider the District fortunate that your examination did not reveal a pattern of ongoing fraud which the external auditors failed to detect. We attribute that to the integrity and underlying honesty of our staff."
"We now are aware of two school districts where this firm did not do its job. It is disconcerting that this firm was supposed to be the fiscal watchdog at 53 school districts, but it is unclear whether these remaining districts were similarly ill-served," Hevesi said. "At this point, the best course of action for the boards of these districts is to work closely with their new auditor and carefully scrutinize the results of their new 2004-05 fiscal year audit. Unless there is an indication of financial irregularities, it should not be necessary to re-audit the work of Miller, Lilly & Pearce."
Hevesi also offered the following recommendations to school districts that previously used Miller, Lilly & Pearce for auditing services:
Utilize a competitive RFP process to ensure a high quality independent audit of the 2004-05 school year. A model RFP is available at www.osc.state.ny.us.
Require the CPA to present audit results directly to school boards (i.e., not just to staff), and ask a series of questions on what sort of internal controls testing will be done in the course of the audit.
Create an internal audit function by hiring an individual or audit firm - not the same entity that performs the annual audit - or through a shared services arrangement. An internal audit process involves reviews of financial policies and procedures, tests of internal controls, and creation of risk assessments for fiscal operations, and recommendations for improvement.
Establish an audit committee to oversee internal and external audit work, selection of auditors, review financial statements and monitor any corrective action plans.
Comparable to the Roslyn findings, State auditors discovered work performed on the audits was flawed and did not meet professional requirements for such an audit and was significantly deficient in planning and execution. Among the findings are:
Miller, Lilly & Pearce failed to meet numerous mandatory professional standards for conducting audits. The firm did not meet 10 of the 22 standards for the 2002-03 audit and nine of 22 for the 2003-04 audit. Non-compliance with any one standard is grounds for referral to the State Board for Public Accountancy.
The CPA partners sold financial software to the District - transactions which create a conflict of interest and violate professional standards requiring auditors to be independent.
The firm further violated professional standards for independence when it posted transactions to the District's accounting records and then audited those same records. In fact, the firm made 37 entries totaling nearly $130 million and 68 adjusting entries totaling more than $7.4 million in a two-year fiscal period.
The CPA firm's planning efforts were substantially below professional standards. For instance, the firm did not address the possibility of fraud or illegal acts and plan tests accordingly. Nor did the firm take into account that the District used a computerized accounting system, which the firm sold to the District, to ensure that the controls built into the software were operating as intended. In fact, the controls had not even been activated and a range of employees could have manipulated the District's financial system.
In its testing of District spending, the CPA firm did not look at cancelled checks, which is a standard practice for audits. In addition, while the firm's workpapers identified potential instances of weak internal controls over assets that warranted further investigation, such as the lack of supporting documentation for purchases, there is no evidence that the firm ever investigated these weaknesses.
Even though the District exceeded budgeted amounts and executed some year-end adjustments, the firm never looked at these transactions.
When auditors reviewed a sample of 25 disbursements that the CPA supposedly tested in the 2003-04 fiscal year, six of the claims had inadequate information to determine if the purchases were subjected to competitive bidding requirements or the District's purchasing policy. In addition, when auditors attempted to find six other claims listed in the firm's workpapers they found that those claims and at least 43 others did not match the vendor name, amount paid or the date of the actual claim.
While State auditors found that the District's written policies and procedures to procure audit services were adequate, the District did not follow these policies. They did not seek competitive offers from other firms and, in fact, used Miller, Lilly & Pearce for 10 years.
Auditors recommended that the District implement a competitive process to hire a new auditor and require that the new CPA firm to communicate directly with the Board. Auditors encouraged the District to clearly define the responsibilities of the District's new Audit Sub-Committee and ensure that members have sufficient financial expertise necessary for reviewing the audit report and underlying audit work. Auditors also suggested that District officials and Board members be more knowledgeable of the annual audit process so they can better identify irregularities and monitor overall financial matters.
The District agreed with the audit findings and indicated that all the recommendations would be implemented. The full response from Board President Maimone is included in the audit.
Copy of the AuditRoslyn Report by NY State Comptroller Alan HevesiImproprieties by Miller, Lily, and PearceEntities Audited by Miller, Lily, and PearceState Audit Blasts CPA Firm
Hevesi: Work Was 'Appallingly Inadequate' By Joe Scotchie
LINKIt may be about another month before the New York State Comptroller's office issues its long-awaited audit of the Roslyn School District's finances.
State Senator Michael Balboni, left, and State Comptroller Alan Hevesi at the Jan. 6 press conference.
In the meantime, that office recently released a scathing report on its audit of Miller, Lilly & Pearce, the East Setauket-based CPA firm which itself was the auditor for the Roslyn district.
"The work of Miller, Lilly, & Pearce was so appallingly inadequate that it would shock anyone associated with the auditing profession and certainly the taxpayers who depend on the firm to safeguard their money," State Comptroller Alan Hevesi said at a Jan. 6 press conference in Mineola.
"Our auditors found fraud so pervasive that it would have taken significant effort not to uncover it," Hevesi continued. "Even a rudimentary review of disbursements and cancelled checks would have revealed many instances of wrongdoing. I am extremely troubled by our findings, and I urge the State Board for Public Accountancy and the Nassau County District Attorney's Office to pursue this matter aggressively."
The audit of the CPA firm is all part of an investigation into the embezzlement scandal in the Roslyn district, one that involved up to $7.8 million being allegedly stolen from various budgets over the past several years. So far, the scandal has seen the arrests of three former school district employees, including Dr. Frank A. Tassone, the district's longtime superintendent; Pamela Gluckin, a former superintendent for business and finance, and Debra Rigano, a former accounting clerk. All three have been charged with Grand Larceny.
A List of Errors A release issued by Hevesi's office listed its criticism of the auditing firm's work. The comptroller claims that the auditing firm failed to meet "nine mandatory professional standards for conducting audits." For instance, the CPA firm, Hevesi charged, did not find all the inappropriate payments made by the school district once a whistleblower alerted them of possible wrongdoing.
Further, the firm, Hevesi claimed, did not look at cancelled checks while conducting audits. Finally, Hevesi said that the two partners in the firm sold financial and other software to the Roslyn district. According to Hevesi, such transactions "create a conflict of interest and violate professional standards requiring auditors to be independent."
More specifically, Hevesi said that when "questionable disbursements" were revealed to the firm by a district whistleblower, auditors with Miller, Lilly & Pearce found $223,136 in "inappropriate payments." When State auditors did the same research, they found $1.6 million in "questionable payments."
In addition, two of the three partners in Miller, Lilly & Pearce had 55 percent ownership in the company that sold the Roslyn district its financial management software, a company called "Finance Manager."
Hevesi also criticized the CPA firm for not taking steps to increase testing once fraud had occurred; for not testing the district's computerized accounting system; for not investigating the district's "weak internal controls" over assets; for not looking at the "unusually large number of budget changes" that were taking place within the district; for lack of documentation in audit conclusions; and finally, for not looking at cancelled checks. Hevesi said it is "elemental" that all CPA firms look at such latter discrepancies, while he added that the large number of budget changes that were occurring "should catch your eye."
"This is a total failure of one of the key safeguards to protect public monies," Hevesi said of his department's findings. "The system of districts' hiring independent auditors must be strengthened and augmented by review from the Office of the State Comptroller in order to ensure that adequate financial controls are in place. That's why I have asked the Governor and Legislature for $5.4 million to hire 89 auditors to look at every school district around the state on a routine basis."
Firm Makes No Comment
A spokeswoman for Miller, Lilly & Pearce said that the firm has no comment on the report.
At the press conference, Hevesi was joined by State Senator Michael Balboni. The senator called the findings "another sad chapter" in the ongoing embezzlement scandal, while adding that it was also a matter of "the fox in charge of the henhouse."
Balboni said that three things should be taken into consideration as reform efforts go forward. First, he said, everyone should realize that the problem is "bigger than Roslyn." Second, board of education members need at least some rudimentary knowledge in finances. And third, the State legislature needs to support State auditors with enough resources to do their job.
To support Balboni's claim, on the same day that Hevesi made his findings public, it was also revealed that the assistant superintendent of finance and operations for the Mineola District had been arrested and charged with Grand Larceny.
Balboni was also alluding to the fact that Miller, Lilly & Pearce audited finances for 53 other school districts in New York State, all but two of which are located on Long Island. In Nassau County, those districts include Herricks, Manhasset, Garden City, Glen Cove, Port Washington, New Hyde Park, Syosset, Bethpage, Hempstead, Island Trees, West Hempstead, Levittown and Massapequa.
Further, there are 100 school districts in the entire state that are currently using Financial Manager software.
School boards are taking steps to avoid a Roslyn situation. At the last meeting of the Herricks school board it was announced that the district is interviewing other audit companies and will announce the new company they have selected at the next board meeting to be held on Jan. 20 at 6:30 p.m. at Herricks High School.
At the last meeting of the New Hyde Park/Garden City Park school board it was announced that the superintendent and the school board plan to meet with the officials of Miller, Lilly and Pearce and to go over step by step their audit procedures. The board will report on that meeting in the near future.
Roslyn, Long Island's Culture of 'Permissive Spending'Four Long Island, New York ,School Districts are Targeted For Audits by State Comptroller Alan HevesiRoslyn, Long Island, NY: The Enron of Education Fraud and CorruptionRoslyn, Long Island: A Look Inside the Fraud of Public School Education Inside: Business/Finance
Feb 1, 2005 12:00 PM
AUDITING THE AUDITORLINKThe New York State comptroller has issued a blistering report criticizing the firm that handled audits for a district where former administrators have been accused of embezzling funds.
Comptroller Alan Hevesi says that the work of Miller, Lilly & Pearce, the firm that audited the Roslyn School District, "was so appallingly inadequate that it would shock anyone associated with the auditing profession and certainly the taxpayers who depend on the firm to safeguard their money."
Hevesi says his office's audit of the accounting firm determined that Miller, Lilly & Pearce "failed to identify millions of dollars apparently stolen by district personnel even after the firm was aware that fraud had occurred."
Three ex-employees - former superintendent Frank Tassone, former assistant superintendent Pamela Gluckin and former accounting clerk Debra Rigano - face criminal charges for allegedly defrauding the district out of more than $2.3 million.
STRICTER CONTROLSWith two of its former administrators facing charges for stealing district funds, the William Floyd (N.Y.) School District has announced efforts to prevent similar misconduct from occurring again.
"We have strengthened our internal controls and employed an even more rigorous system of checks and balances," says board president Vincent Pascale in a letter to district constituents. "We have only hired staff who have survived an intense and probing recruitment process. Backgrounds are checked, confidential recommendations from multiple sources are reviewed and fingerprints are submitted to the state for criminal history clearance. Our business office staff is cross-trained, and duties are segregated within the accounting department."
The district, based in Mastic Beach, N.Y., has hired an independent internal audit firm to review every bill paid by the district.
Daniel C. Cifonelli, a former assistant superintendent for business, has been charged with stealing $687,850 from the district and the state's teachers' pension system. William Floyd's former treasurer, James Wright, has been charged with writing at least $700,000 in checks to himself from the district. District officials say they have recovered all the stolen money they are aware of.
SCHOOL FINANCE DEADLINEThe Kansas Supreme Court has ordered the state legislature to come up with a new school aid formula by April.
The ruling came in a lawsuit brought by districts that argued that the existing method of distributing funding to Kansas schools is unfair.
"The legislature has failed to meet its burden ... to 'make suitable provision for finance' of the public schools," the court says.
The decision notes that the state will need to boost funding for schools and devise a formula that allocates money more equitably.
"Increased funding may not in and of itself make the financing formula constitutionally suitable," the court says. "The equity with which the funds are distributed and the actual costs of education ... are critical factors for the legislature to consider."
U.S. EDUCATION DEPARTMENT APPROPRIATION TOTALS2004 discretionary funds $55,661,673,000
2004 mandatory funds $11,301,443,000
2004 total $66,963,116,000
2005 discretionary funds $56,577,424,448
2005 mandatory funds $11,139,614,000
2005 total $67,717,038,448
Source: U.S. Department of Education THE HEARTLAND INSTITUTE
19 South LaSalle Street #903
Chicago, IL 60603
phone 312/377-4000 ยท fax 312/377-5000
http://www.heartland.org
bold]Corruption in Public Schools Costs Taxpayers, Impedes Reform
In Roslyn, education dollars spent on Lexus, limos, and luxury
Author: Lisa Snell
Published: The Heartland Institute 09/01/2004
LINKOngoing news reports from across the country indicate incidents of corruption and mismanagement in the public schools occur frequently, often on a massive scale. Ignoring the scale of the problem not only costs taxpayers millions of dollars but also hinders school reform efforts, according to New York University law professor Lydia G. Segal.
In her recent book,
Battling Corruption in America's Public Schools (Northestern University Press, 2003), Segal argues, "one impediment to reform that no one is seriously studying in the debate over how to improve public schools is systematic fraud, waste, and abuse." Her careful documentation of the pervasive corruption and waste in the nation's three largest school districts--New York City, Chicago, and Los Angeles--leaves little doubt the problem merits serious study.
However, fraud, waste, and abuse are not limited to large urban school districts, as the following recent examples demonstrate.
$8 Million in Undocumented Expenses
In New York's affluent Roslyn School District on Long Island, former school superintendent Frank A. Tassone and senior administrator Pamela C. Gluckin were each charged recently with stealing more than $1 million from the district. Gluckin allegedly used the funds to finance four homes, a Lexus, and other luxury items. Tassone allegedly used his $1 million for airline travel, cruises, dermatology treatments, furniture, and jewelry, and to give his roommate's company more than $800,000 in no-bid contracts. Both Tassone and Gluckin pleaded not guilty.
The Roslyn school board is still reviewing more than $8 million in undocumented expenses. According to the New York Times, those expenses include:
$736,000 paid to an Oklahoma publishing company that has no record of doing business with the district;
$600,000+ spent in delicatessens and specialty food stores;
$100,000+ spent on limousines and car services;
$50,000 paid to restaurants;
$21,000 charged for a BMW lease or purchase;
$3,800 spent to reserve space with Manhattan Mini-Storage, a long way from Roslyn;
$1,485 spent for an Equinox gym membership.
Gluckin previously worked for Long Island's William Floyd District under former treasurer James Wright, according to Suffolk Life. In June, Wright was charged with stealing more than $750,000 from the William Floyd District simply by writing checks to himself.
$15.9 Million in Kickbacks
In Fort Worth, Texas, a school construction scandal ended in June with the former executive director of maintenance for the Fort Worth School District, Tommy Ingram, and contractor Ray Brooks being sentenced to eight years in prison each for a kickback scheme in which they defrauded the school district of an estimated $15.9 million.
Payroll Scam
In July, eight employees of the New Orleans school system pleaded guilty to stealing more than $70,000 in a scheme in which payroll clerk Louis Serrano wrote fraudulent checks to seven other employees in exchange for half of the face value of the checks. A ninth employee, payroll clerk Terri Smith Morant, admitted stealing $250,000 by printing checks to herself using her maiden name.
According to a recent report by the state legislative auditor of Louisiana, school system employees have cashed an estimated $3 million in paychecks that administrators sent out either in error or with criminal intent.
Fighting corruption in the school system is like "eating an elephant," New Orleans Police Superintendent Eddie Compass told The Times-Picayune. "We just took the first bite."
Mismanagement
In addition to losses from outright fraud, taxpayers also have lost millions due to mismanagement and incompetence.
For instance, in a June 2004 audit of California's Oakland Unified School District, state auditors could not determine if in 2002-03 the district had appropriately spent millions of dollars and properly complied with scores of state and federal mandates. As a result, the district could be forced to repay $163 million to the state and federal governments. In addition, district bonds worth $322 million are in jeopardy of losing their tax-exempt status because the funds have been inappropriately spent on general education rather than on specific projects.
According to the audit's findings, the district's shortcomings included:
Failing to hold competitive bidding for $18.4 million in contracts;
Inappropriately using $650,000 in bond funds to pay a lawsuit settlement;
Issuing payroll checks to employees when they no longer worked for the district;
Failing to maintain attendance records at some schools and overreporting attendance at others;
Inappropriately carrying over unused funds for federal projects from one year to the next.
Also in June in southern California, the Los Angeles School Board continued the saga of the most expensive high school ever built by voting to do further work on the Belmont Learning Complex. When completed, Belmont will have cost about $270 million--$175 million of which has already been spent to produce a school that currently is unusable.
In June in south Florida, auditors delivered 650 pages of backup documents to support the findings of an April 2004 forensic audit that charged the Miami-Dade school district with wasting more than $100 million in its school facilities program. The audit alleged there was massive disorganization and waste in the program as well as "probable malfeasance, misfeasance, and potential for fraud."
Exploiting a Loophole
Unethical behavior and taxpayer abuse by school employees is not always illegal. In June, thousands of teachers in Texas rushed to retire before a lucrative loophole in Social Security law closed. Although most Texas teachers participate in a state pension fund rather than paying into Social Security, the loophole allowed them to receive Social Security benefits if their last day of work before retirement was in a job covered by Social Security.
In 2002, one-fourth of all public school retirees in Texas--3,521 people--took advantage of the loophole, according to auditors. Congress moved to close the loophole in spring 2004 when auditors estimated leaving it open could cost the Social Security system $450 million.
School districts around the state helped retiring teachers meet the one-day requirement by hiring them to work janitorial or maintenance jobs on their last day of work. Teachers paid the districts a small fee for this privilege, generating substantial revenues for some districts. For example, the Lindale Independent School District made about $700,000 helping teachers beat the deadline, according to assistant superintendent for business Mike McSwain.
"We just couldn't look at our taxpayers and say we passed up this opportunity to get this kind of revenue into the district," McSwain told the Associated Press.
Lisa Snell (lsnell@reason.org) is director of the education program for the Reason Foundation in Los Angeles.Oakland Unified School District Audit 2003 650 Pages of Backup documents for the audit of the Miami-Dade School District
