Michael E. Nawrocki Ernest Patrick Smith

August 21, 2014

VIA EMAIL

Celeste Kerimian District Clerk Hauppauge Public Schools 495 Hoffman Lane Hauppauge, NY 11788

CERTIFIED PUBLIC ACCOUNTANTS d,,: BUSINESS CONSULTANTS

Re: Claims Audit 2013/2014 Year-End Summary Report

Dear Ms. Kerimian:

Lauren M. Agunzo John K. Hoffman Darin V. Iacobelli David M. Tellier

Attached please find a copy of our claims audit 2013/2014 year-end summary report. Please distribute a copy to the Assistant Superintendent for Business and Operations and to each of the Board members of the Hauppauge Public Schools.

Thank you for your assistance in this matter.

Sincerely yours,

Lauren ~. }l1JU1I.ZO

Lauren M. Agunzo CPA, CFF, CITP

Enclosure

Nawrocki Smith LLP 1290 Broadhollow Road. Suite 115EI Melville. New York 117471 w: nsllpcpa.com 1 t: 631.756.95001 f: 631 .756.9818

To:

NA WROCKI SMITH LLP

Memoralldum

Board of Education Hauppauge Public Schools

From: Lauren M Agunzo. CPAlCFF.CITP Nawrocki Smith LLP. Certified Public Accountants & Business Consultallls

Date: August 21. 20J.l

Re: Claims Audit 2013120/4 rear-Elld Summary Report

We have provided claim auditing services to the Hauppauge Public Schools for the time period commencing July 1,2013 through June 30,2014. The services we performed, as outlined in our initial proposal, included reviewing all claims against the District.

The claims audit function is an integml component of a properly designed system of internal controls. The claims auditor is responsible for ensuring that proper documentation and authorization are provided for each claim against the District. This responsibility includes formally examining, allowing, or rejecting all charges, claims, or demands against the District.

We performed the following claims audit procedures during each audit:

(I) Verification of the accumcy of invoices & claim forms

(2) Ensuring proper approval of all purchases; checking that purchases constitute legal expenses of the school district

(3) Determining that purchase orders have been issued in accordance with Board of Education policy and applicable state laws

(4) Comparison of invoices or claims with previously approved contracts

(5) Reviewing price extensions, claiming of applicable discounts, inclusion of shipping and frei ght charges

(6) Approving all charges that are presented for payment which are supported with documentary evidence indicating compliance with all pertinent laws, policies and regulations

Nawrocki SlIIitlt LLP, Certifiet! Public AccOIllltallll' (lilt! Busilless COllsllltallts

, .......

Hallppallge Pllblic Scllools Allgllst2/,20U Page2of3

Re: Claims AlIIlii 20/312014 Yellr-Elld SlImmllry Report

We applied the above audit procedures to 4,238 claims against the District in the amount of $51,773,122.86 during the time period of July 1,2013 through June 30, 2014. Based upon the audit process applied, we noted inquiries andlor observations pertaining to 112 claims, or approximately two percent (2.12%), which are categorized on a monthly basis as follows:

InCOI'f«I ellce!.: nlnount · , . . · · InCOfTeCI checl.: nlnoun! · . · . , · Insufficicnl supporting bad(up , , , · . · 1 hU'oicc lillie precedes PO dale 7 6 ,. 10 , 8 ,. 1 • · 1 (Moice O\U 90 lbys outdandinj , · , , , · Noc on ori inal in\'Oice , · TOTAL • , " 11 , • ,. I " · •

Provided below is a graphical representation of the number of inquiries as a percentage of total claims during the time period of July 2013 through June 2014:

Inquiries as a Percentage of Total Claims Audited

-

4.50% ,-----------------------

4.00%

3.50%

3.00% -2.50"" I-- r- -

2.00% I-- I-- - -

1.50%

1.00%

0.50%

0.00%

I-- I-- - - I-- i-1-1---1--

I-- I-- -'-,-

- I--'-,-

-

-- -- -

We would like to commend the Business Office for making necessary records available to us as requested. As a result of the limited number of observations, it is evident that Business Office personnel are making best efforts to comply with the purchasing requirements of the District. In an attempt to assist the District in improving the process, we have noted the following observations/recommendations:

We observed that seventy-six (76) out of 4,238 total claims, or approximately two percent (1.70%), were confirming purchase orders (invoice date precedes purchase order date) during the 2013-2014 school year. The practice of issuing confirming purchase orders bypasses the encumbrance process and does not permit the Purchasing Agent to consolidate orders or obtain the lowest possible prices in an effort to minimize costs. Additionally, a confirming purchase order indicates that an employee has committed District funds without proper approval.

Nawrocki Smitll LLP, Certified Pllblic ACCOlllltOlI/S IIIIlI Bllsilless COIlSlll/llllts

. , 7

•

I , • ,. • I

89

Hallppallge Pllblic Schools Allgllst 21, 2014 Pllge 3 of3

Re: Claiml' Alldit 201312014 Year-Eml SlImmary Report

• We recommend that all purchases be subject to the encumbrance process and that purchase orders only be created and approved by the Purchasing Agent, Purchases made on an emergency basis should be supported by a memorandum or leiter justifYing the confirming purchase order,

We have observed strong clerical support within the Hauppauge Public Schools Business Office as we noted very few, or no, occurrences of:

Discounts not applied I ncorrect check amount Insufficient supporting backup Invoice greater than purchase order Invoice over 90 days outstanding Missing receiving signature on invoice or PO Not an original invoice Paid previous balance Paid sales tax Purchase order detail inconsistent with invoice Quote information not attached Vendor name incorrect Check sent prior to audit approval Incorrect remit address

If you require any further information or have any questions on this year-end summary, please call our Melville office at (631) 756-9500,

Nawrocki Smitll LLP, Certified Pllblic AccOlIIIUlllts ami BIIl'illess COl/sllitallls

General Fund IA) Federal Funds

eB)

Hauppauge Union Free School District Treasurer's Monthly Report

For the Month Ended August 31, 2014

InsUf1Ince School Lunch Trust & Agency Capital Funds

Reserv. Fund eC) Fund (0) eEl Account(fl

Workers' Benefits Retirement

Compensation Reserve

Rep.llr Reserve Reserve

Capital Reserve

Reserve Account Account (I, Account (KJ IG'

Account (HI Account (J)

Available Cash Balance as Rlfported at the End 0' Preceding Month $12,964.400.76 528,145.43 51 ,042.145.'72 S70.183.41 $4,700,722.06 $591,318.63 $789.659.85 56.932,184.83 $404,332.48 53.376,404.16 52,534,081 .79

Add:

Less:

Receipts Collected During The Monlh Real Property Taxes State & Federal Aid Interest & Earnings on Investments Wire Transfers Other Revenue

000 238,669 70

2,431.03 3,440,077 35

46,03230

000 000 193

81,263 .23 000

0.00 000 000 0,00 0 00 000

8840 19.6 1 37385 6 16052 1 545,084 36 000

54464 55,42741 000

Total Receipts 53.727.210.38 581.265.16 16.193.56 51.600.531.38 5373.85

Disbursements Used During the Month

000 000 000 0 ,00 0,00 0.00 000 000 000 000 0,00 000

5223 6893 60511 35.29 29473 22120

000 000 000 0.00 000 000 000 000 000 0.00 0 .00 000

1&2.23 $68.93 $605.11 $3B.'9 1294.73 $221.20

By Check 2 648 0901 3 11 ~34 74 0 .00 1.265,70532 1 399.030 T7 0.00 a 00 0 00 000 0 .00 000 By Wire Transfer 3 509 028.39 97473 92 0.00 333,15809 0 00 0 .00 000 0 00 000 0 .00 0 .00 Payroll Account 601,823 .21 000 0 .00 a 00 000 0.00 000 000 0.00 0 .00 000

Total Disburnments $6,758,941 .73 5109,40ii .66 $0,00 $1 .598,863.41 $1,399,030.17 SO.dO 50,00 50.00 SO.OO $0.00 SO.OO

Available Cash at End of Month $9.932.6G~.41 $1 .93 $1.041,939.26 $11,851.38 $3,302,065.14 $598,370.86 5789.728.78 $6.932.789.94 $404,367.77 $3,376,698.19 52,534,302.99

Reconciliation with Bank Statement Balance Per Bank Statements 10,038,423.47 8,994.17 1,049.039.78 187,279.81 3,302,065.14 598,370.86

l ess: Outstanding Checks 105,754 06 8.99224 10050 115,428 .43 000 0.00 Add: Deposits in Transit 0.00 0 00 000 0.00 0 .00 0 .00 Add (less) Misc. Charges 000 000 000 000 000 0.00

Adjusted Bank Balance $9,932,669.41 51.93 $1,048,939.28 571,851.38 $3,302,065.14 $598,370.86

Investment Analysis

Opening Billance·lnvestments 11,238,990.88 664.763.29 598,318,63

Deposits 345,783 .35 0.00 0 .00 Disbursements 3,379.066.00 0.00 000

Interest Reinvested 2,249 23 58.03 52 23

Ending Balance · Investments 58,207.957.46 $664,821 .32 5591.370.86

I, Michael T. Keams, certify that the above balances are In agreement with the bank statements, as reconciled. A»T. It.

789,728.78 6,932,789.94 404,367.77

000 0.00 0 .00 0.00 0 .00 0 .00 000 000 0.00

$789,728.78 $6,932,789.94 $404,367.77

789,659.85 6.932.184.83 404,332.48

000 000 0.00 000 0.00 0.00

6893 60511 35.29

$789.728.78 $6,932,789.94 s.t04,367.77

(District Treasurer)

3,376,698.89

0 .00 0 .00 0 .00

$3,376,698,89

3,376,404,16

0.00 0.00

294 73

$3.376,698.89

2,534,302.99

0 .00 0.00 0.00

52,534,302.99

2,534,081.79

000 0.00

221.20

$2.534.302.99

~ t)v

~

HAUPPAUGE UNI(IN FREE SCHOOL DISTRICT

Treasurer's Repon fut ttlt: Period Ending August 31, 2014

Gen. Fund Gem Fund· MM Gen. Fund - rvtM lJ;Jyrull Otbl S

llAUPPAUtjE UNION FREE SCIIOOL DISTRICT

Trl!aSUh!I'S Repon fot the Penod Endmg August 31 101"

Capllal Ch~c"m& Carlllal (Bond) Cap Imp. MM Copl1.l1 Rescn'e Repair RL"S

HAUPPAUGE UNION FREE SCHOOL DISTRICT COlLATERAl RECONCILIATION

q.~~ AS OF 8Il1/14

EUGIBlf BOOt< SANK BAlANCES lESS: FDIC COVERAGE AMY. NOT COlLATERAL ....... C. IHTEREST HOfrl.WrEREST COVERED PUGGEO BY ACCT.' ACCOUNT m"Z014 B ..... G BEARJNG TOTAl lHTEREST KON4HT TOTAL _BY FDCC BAHK tN. .. Bank (Bank or NY· AcCU40001Q.

5JO.fin375 GF Money Maltel 3,163,967 so 3.163.96750 3183,967.50 449234538 GF Checking 1.724,699,51 1,830.453 57 1.830,45357 85U20092 T&A Checking 71.851 .38 72,689.66 72.689.66 ..... 9233522 Payroll 114.590.15 114.590.15 85U20017 Spec.ial Fundi Checking 1.93 8,994.17 8.994.17 335-9009497-65 Debl Senolce Checking 12 ...... 12 ...... 12 ...... 530-6n367 CapilalMM 664.821 .32 664.821.32 664.821.32 935428714 Capi1al Chacking 2.192.022.07 2,192,022.07 2.192,022.07 449234561 Capital Bond .... 5.22175 445.22175 ..... 5.22175 2952125389 Repait Aelerve 404.367n 404,367n 404,36777 2952125520 Capital Relerve 2,534,302,0 2,534,302.99 2,534.302.99 449234553 SLChecking 1,048.939.28 1,049,039,74 1,049.039.78 3015971285 In$unnce R.s, Ch8cting 598,370.86 598,370.88 598,370J16 3015971269 WorIo.eJa Comp Res8Ne 789,728.78 789,n8.78 789,728.78 30159712n Relitem.nt Coni. Reaeno. 3,376,698.88 3,376,698.89 3,378,698.89 3015971251 Benelits Reserve 6,932,7119,&4 8,1132,789.94 6,932,789 &4 1135479121 .eAF 135.522.97 135,522.97 2906570350 ECAFMM 75,059.32 75.059.32

OVER IUNDER)_ ".rg,"

Tolal Chase Bank 23.947,796.4'- 24,274~063.78 114.590.15 24.3811,653.93 250.000.00 114,590.15 3&4,590.15 24,024:063.78 25.225.353.89 1.201.290.11 5.00,,"

FrUlhl", I .. M (F • .,., Home L.a.n BHk of NY • no12010500021 7400001252 Gf Money J.Wke1 5,043,981U6 5,043,1189.96 5,043.989.98

Tolal FIu$hing Bank 5,043.989.96 5,043,989.96 5.043.989.96 250.000.00 250,000.00 4,793.989.96 5,000.000.00 206.010,04 4.30%

District Tolal 211.991.711t1.37 29.3111.053.74 114.590.15 29.432,643.89 500000.00 114,590.15 614.590.15 28.8111.053.74 30.225,353.119 1.407,300.15 !!lm; The District has maintained a sufficient amount of coIaleral for aQ bank accounts in

aCCOldance with General Municipal L.lw and the District's in'testmenl policy.

• • • • • • • I I I I I I I I I I I I

Hauppauge Union Free School District Independent Accountant's Report On

Applying Agreed-Upon Procedures

August 20,2014

I I I I

• • • • • • • I I I I I I I I

CULLEN & DANOWSKI, LLP •

CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT ACCOUNTANT'S REPORT ON APPLYING AGREED-UPON PROCEDURES

To the Board of Education and Audit Committee Hauppauge Union Free School District Hauppauge, New York

VINCENT D. CULI.EN. CPA (l ?.'iO· ;UJll]

lAMES E. DANOWSKI. CrA

PETER F. RODRIGUEZ. CPA

IILL S. SANDERS. CPA

DONALD I. HOFFMANN. CPA

CHRISTOPHER V. REINO. CPA

ALAN YU. CPA

We have performed the procedures described in the following pages, which were agreed to by the Hauppauge Union Free School District (District), solely to determine the effectiveness related to the employee benefits administration area in complying with policies and procedures of the District for the period January 1, 2013 through February 2B, 2014.

The District's management is responsible for administering this area.

This engagement to apply agreed-upon procedures was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the District Consequently, we make no representation regarding the sufficiency of the procedures either for the purpose for which this report has been requested or for any other purpose.

Our procedures and findings are described in the following pages.

We were not engaged to and did not conduct an audit, the objective of which would be the expression of an opinion on the District's employee benefits administration area in complying with policies and procedures of the District Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

We would like to express our appreciation for the cooperation and assistance that we received from the District's administration and other employees during our engagement

This report is intended solely for the information and use of the District and is not intended to be and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purpose.

~ 'I-~ LI._:,o August 20, 2014

PHONE: 63H73-3400. FAX: 63H73·4863. WWW.CDLLP.NET o

• •

I I I I I I

Introduction;

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures

For the Period Ended February 28, 2014

This report is organized by category (Employee Benefits Administration Background, Employee Health and Dental Insurance, Retiree Health and Dental Insurance, Life Insurance and Accidental Death and Dismemberment Insurance [AD&Dl, Unemployment Insurance and Workers' Compensation) and there are five sections under each category consisting of:

• Background information

• Summary of the engagement

• Procedures performed during our detailed testwork

• Findings as a result of our review

• Recommendations to further strengthen internal controls or improve operational efficiency.

Some of the recommendations may require a reassignment of personnel duties within the District and/or a monetary investment However, any enhancement of controls should be done after a careful cost-benefit analysis.

Corrective Action Plan;

Commissioner of Education Regulation §170.12(e)(4) requires that a corrective action plan, approved by the Board of Education, must be filed within 90 days of issuance with the New York State Education Department

The District should send the Corrective Action Plan (CAP) along with the respective Internal Audit Report via mail or email to the addresses listed below. The report needs to accompany the CAP to allow the Office of Audit Services (OAS) to reconcile the District's CAP to the report to ensure all items have been addressed (i.e., CAP is not missing any recommendations).

Submission Information - Mail & Email New York State Education Department (NYSED) Office of Audit Services (OAS) 89 Washington Avenue RoomS24EB Albany, NY 12234 Esanda133@majl.nysed,gov

ContlJct Mr. John Cushin (518) 474-5928

·2 ·

Background;

HAUPPAUGE UNION FREE SCHOOL D1SfRlCT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28, 2014

EMPLOYEE BENEFITS ADMINISTRATION BACKGROUND

The District provides various benefits to the employees including health, dental, optical, life and accidental death and dismemberment insurances and penSions for qualified retirees. These benefits are either mandated (payroll taxes, NYS Teachers' Retirement System [TRS), NYS Employees' Retirement System [ERS), etc.), or are required by either collective bargaining agreement or individual contract

The proper administration of benefits is an important function of the District The District has one full-time benefits clerk who is primarily responsible for the daily administration of the benefits. She has been in this position for 5 years and understands her role and responsibilities at the District Additionally, there are various account clerks that handle payroll, accounts receivable and accounts payable/cash disbursements related to the benefits area. These employees have been at the District for a number of years and are experienced in their roles and responsibilities. Their work is overseen and monitored by the Assistant Superintendent for Business and Operations and the Head Clerk. The District utilizes the Finance Manager financial system (Finance Manager), which is a sophisticated product that has been tailored to meet the requirements of New York State school districts.

The benefits costs for the 2012-13 fiscal year (actual) and the 2013-14 (adjusted budget) were approximately:

Summary;

Description

Employee Retirement System Teacher Retirement System Social Security/Medicare Workers' Compensation Life Insurance Unemployment Insurance Disability Insurance Health and Dental Insurance,

Net of Contributions

Total Benefits Costs

2012-13 Actual

$

$

1,761,000 4,713,000 3,659,000

355,000 22,000 80,000

101,000

9,156,000

19,847,000

2013-14 Budget

$

$

2,105,000 7,367,000 3,964,000

499,000 27,000

150,000 121,000

10,602,000

24,835,000

Overall we found the administration of the benefits function to be operating well. All of the files were well maintained and easily reviewable. District staff is knowledgeable about the reqUirements of their responsibilities and assisted us by providing all of the requested items. We recommend that the District consider implementing the recommendations noted below to further strengthen internal controls and improve operational efficiencies related to the administration of benefits activities.

Procedures:

Our procedures, as per the engagement letter dated February 20,2014, were as follows:

• Review Board policies and District procedures related to benefits for employees.

- 3-

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28.2014

• Interview District personnel responsible for benefits related to billings. collections and provider payments for ensuring the accuracy of the data and that the changes to enrollments are handled in a timely manner.

• Review billings and collections related to insurance benefits to ensure proper segregation of duties and identify opportunities for operational efficiencies within the benefits function.

• Compare the insurance benefits prOVided to employees to the respective bargaining unit contract requirements.

• Compare invoices to payroll records to ensure accuracy of payroll deductions.

• Review employee benefits related activity for the period and for each type of insurance benefit:

- Select 1 month and test the invoices of each insurance provider to ensure that the payments are accurate. processed timely and properly supported (e.g .• reconciliation documentation).

- Select 25 active employees enrolled in each insurance benefits plan to ensure proper deductions from employees. payments to the plan providers are accurate and timely. and rates are in compliance with approved plans.

- Select 15 retirees enrolled in each of the District's benefits plans to ensure accuracy of their payments and verify their eligibility.

Review general ledger account activity during that time period for unusual transactions or entries. Discuss any noted items with District personnel.

- Review the annual recalculation of cost allocation as of January 1. 2014. for accuracy.

• Review the District's reconciliation of the monthly invoice for each benefit program to the District's employee and payroll records. In the event that the reconciliation was not prepared. we will assist the District in performing the reconciliation. If necessary. we will also assist the District in automating the reconciliation process to provide greater efficiency and accuracy.

Findjnesi

Review of Board policies and District procedures related to the benefits noted:

•

•

There are no Board policies related to the benefits. However. the benefits for employees are included in specific bargaining unit agreements and individual contracts.

There are no written. formal procedures documenting the key roles and responsibilities performed within the employee benefits area. which would assist the Benefits Clerk in performing her duties. We found that the District has started developing written. formal procedures related to this area.

Review of billings and collections related to insurance benefits found:

• The processes associated with billings and collections for benefits administration appear to have adequate controls (e.g .• properly segregated) in place. We found that the Finance Manager system generated accounts receivable Aging Report included some credit balances as of February 28. 2013. We unde~~ta~d that these items are attributed to retirees who prepay monthly health insurance icontn urions in advance and the District reduces these balances when processing the monthly health nsurance invoice.

- 4 -

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28, 2014

Comparison of the insurance benefits provided to employees to the bargaining unit contracts noted:

• The language of the contract was not always conSistently applied to the practices of the District Through inquiry with various District personnel on various items, it was noted that it was past practice and/or legal advice to implement certain procedures; however, there was no documentation of these decisions. With a number of bargaining unit contracts expiring at year end, the contracts should be negotiated to reflect actual District practices.

Review of the general ledger account activity during that period found:

• There were no findings or issues found during our review of the general ledger account activity.

Review of the District's reconciliation of the monthly invoice for various benefit programs to the District's employee and payroll records noted:

• Although health insurance reconciliations are being successfully performed on a monthly basis by the benefits clerk. the process is very manual and time consuming.

• Dental insurance enrollees and deductions are not being reconciled to the District's third party administrator's Invoice (Sele-Dent, Inc.) listing of enrollees on a regular basis. Through inqUiry with the Benefits Clerk, the reconciliations are not done on a regular basis because the District does not receive consistent listings of enrollees from Sele-Dent, Inc.

• Per the language of the teaching contract, all members of the unit are entitled to receive $15,000 in life insurance benefits. The District has adopted a practice where all full-time members of the unit receive this benefit, but part-time members of the unit (nurses) do not, which does not align with the contract

• Verifying salaries during our review of disability insurance found that 5 individuals out of the sample of 25 employees selected (20% of population selected) had salaries input at a rate that differs from the 2013-14 Finance Manager system-generated Contract and Rate Report The 5 employee salaries were understated by $1,746, leading to an underpayment of approximately $4.00 for January 2014.

• Review of the United Public Service Employees Union (UPSEU) noted that contributions to the benefits plan are made by the District based upon the number of hours the employees work per week We found that 1 employee began the year working less than 20 hours per week, making this employee not eligible to receive benefits. In December 2013, the employee was appointed as a monitor for an additional 2 hours per day, making them eligible to have a contribution made to the union for benefits cost However, the union did not start billing the District until March 2014, nor did the District adjust its payment for this employee during that interim period.

• At retirement, UPSEU members are entitled to receive health insurance benefits until they reach the age of 65 whereby they must contribute 40% of the health insurance costs and the District covers the remaining 60%. We found that 3 retirees of the District worked more than 25 hours per week while employed and should be paying 40% of the current contribution rate of $1,489 as per the UPSEU contract We were informed that the retirees felt that since they are only receiving individual coverage, not family coverage, they should be paying 40% of $902 (which is the contribution rate if the employee worke~ 20-25 hours per week while employed by the District). The employees contacted the union and t~e umon agreed in their favor, although this is not in accordance with the U PSEU contract, which is SIlent as to the type of coverage obtained in retirement and the payment amount per the contract is solely based upon hours worked at the District.

. 5 .

RecommendationS;

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 2B, 2014

d that the District consider implementing the following items to further improve internal We .reclommden an'onal efficiencies related to administering the employee health and dental insurance contro s an oper benefits:

D I rocedures to have an independent recalculation of all health insurance declination payments .6. toe::s:: that the payment is being properly calculated before paid out to the employee.

7_ Establish procedures to follow th~ lathngulage in ~e thHTAHTcAontract Wtitth .rellgardhtoD~eal~h,insuractince d ' Ii ation bonus payments or reVIse e anguage In e contrac 0.0 ow t e IstrICt s pra ce, w~c~ could be Incorporated in the upcoming negotiations after the contract expires on June 30, 2014.

RETIREE HEALTH AND DENTAL INSURANCE

Back&mund:

Tlie Benefits Clerk bills retirees for their contribution amounts towards the cost of health insurance based on Sf!eGli~olli outlined in the contracts they retired under. An invoice for each retiree is prepared monthly if a S!l.~oil' I. required Payment is submitted monthly by the retiree. The Accounts Receivable Clerk !'W'JNi;albi au r!lceivables on Finance Manager to track the retiree billings and payments. Additionally, the AccountsiRet;e1vable Clerk and Benefits Clerk receive and process the payments for the billings.

SummGfj

w, 'tumid. ttliat the administration of the retiree health and dental insurance plans are adequate and in l!iifeeIIlelit~lrespective contracts.

Q!lIl1»l!pGedllJres, as per the engagement letter dated February 20, 2014, were as follows:

eo Rit.Vlew employee benefits activity for the period and for each type of health insurance benefit:

Se1ecr.15 retirees enrolled in the District health insurance plan and 3 retirees enrolled in the dental Insurance plan to ensure accuracy of their payments and verify their eligibility.

1~4 ew"\OlisFetiree~ enrolled in District health and dental insurance plans to ensure accuracy of their payments ~ _ wlti:llftllelr eligibility found:

• AIJ1~et!.liees are contrib ti h ~.... d.~ . u ng t e proper amount based upon the contract they retired under. All invoices ·t .. ".l!@r.e_ Qr retiree monthly contribution billings were prepared both timely and accurately.

~ 1IllIelBenefits Clerk relie h '" . aiii¥Socfal S . ~ on t e employee s family, health Insurance, New York State Retirement system aurrent reti ecurIty to Inform the District about retirees who deceased. In addition, almost all of the a~ with ~e~ls .u:e reqUir~d to contribute towards their health insurance coverage and the District is another proc~s o:ng up With these individuals as soon as their account is 30 days past due. This is Ifu'll deceased r:ti at would alert the District about the possibility of the outstanding balance being due

ree.

-9-

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28, 2014

ct 15 active employees from various bargaining units to ensure that health insurance

Sele I 'd t d' I. n'ons were proper y pal ou accor 109 to contract terms.

dec Ina . w general ledger account activity during that time period for unusual transactions or entries.

ReVie d . ' th D' t . I DisCUsS any note Items WI IS nct personne .

Findings;

R vi f . oices of each health insurance provider to ensure that the payments were accurate, processed

e ew 0 mv d ( '1' . d . ) d timely and properly supporte e.g., reconci lanon ocumentation note :

• There were no findings or exceptions related to our review of the health Insurance invoices. We found that the Benefits Clerk prepares a reconciliation by person for each invoice with all changes documented. The invoice is also reviewed by the Assistant Superintendent for Business and Operations.

Jteiilew.

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 2B, 2014

ti lIy all of the coverage is provided by the Empire Health Plan. Each month the District is invoiced for Substan ~ge provided. The Benefits Clerk reviews this invoice, confirms changes from the prior month, the cove . th· th'·· b· h·· tth reconciliatIOn to e prior mon s inVOiCe, approves the payment and su mlts t e inVOice 0 e pre~arestsuperintendent for Business and Operations, who reviews the invoice and authorizes the payment Assistan

Listed below are some of the key considerations that make health insurance administration relatively complex:

• Calculating and administering the proper employee share of the expense.

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Ensuring accuracy of the invoice.

Reconciling changes in coverage to the invoice and the payroll deduction for the employee share.

Administering the payments for retirees and billing and collecting the appropriate share from the retiree (or surviving spouse) based on their contract or agreement

Reimbursing of Medicare costs for certain retirees.

Paying to employees who decline health insurance coverage.

Summary;

0ve@ll we found that the administration of the employee health insurance plan is operating well. District staff JS; knowledgeable about the requirements of their responsibilities. On a monthly basis, the Benefits Clerk ~nciiIes with changes that took place and also ensures that all employees billed and covered by the District's ~ce agrees to the NYBEAS reports. Employee contributions towards health insurance are also verified on

@ man y basis. Reconciliations for other benefits related to dental, life insurance, disability and UPSEU bflfuifit!l are also prepared by the Benefits Clerk, most of which are also done on a monthly basis. These r!!I'Qcieauiies'have successfully formalized the reconciliation process.

WI! o!crommend that the District consider implementing the recommendations noted below to further sIf~n~ Internal controls and improve operational efficiencies related to the employee benefits activities. lrbisliDdiIdes preparing a checklist to ensure that all tasks associated with the first payrolls of the year are ClOI!!Pleted!

ew.1P~pa~aures, as per the engagement letter dated February 20, 2014, were as follows:

• ~eview employee benefits related activity for the period and for each type of health insurance benefit: Select 1 month and tested the invoices of each health insurance provider to ensure that the payments were accurate, processed timely and properly supported (e.g., reconciliation documentation).

~ Review the payroll deductions to bargaining unit contract language to ensure that the amounts agreed.

~ Independently perform a reconciliation from the health insurance enrollee listing to the payroll records and the Human Resources records recorded in Finance Manager.

S~lect 25 active employees enrolled in each of the District's health and dental insurance benefits p ~ tito e~sure proper deductions from employees, payments to the plan providers were accurate an me y, and rates were in compliance with approved plans.

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Recommendations;

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28, 2014

We recommend that the District consider implementing the following items to further improve internal controls and operational efficiencies related to benefits administration:

1. Continue developing written, formal procedures related to the key processes of the benefits area including the payments and reconciliations of provider Invoices.

2. Consider automating the health insurance reconciliation process to make the task more efficient for the Benefits Clerk. The District should consider obtaining electronic files from Finance Manager and the New York Benefits Eligibility and Accounting System (NYBEAS) listing of employees and retirees receiving health insurance benefits. These two files can be linked together by using a common variable (i.e., employee name) and any difference noted would be highlighted for further investigation.

3. Contact the District's third party dental administrator, Sele-Dent, Inc. and request listings of enrollees be sent to them on a consistent basis, so more frequent reconciliations can be performed.

4. Review the District's procedures related to benefits to ensure that these practices are included within the respective bargaining unit contracts or revise the practices to be aligned with the bargaining unit contract If the language in the contract is silent with respect to the District's practice, consider including this language in the future contract during negotiations. This includes, but is not limited to, the following items:

a) The HTA contract covers nurses employed at the DistriCt. Per review of the contract terms, all members of the unit are entitled to $15,000 in life insurance coverage. Per practice, part-time nurses under this contract are not receiving this benefit even though the contract states all members of the unit

b) The language of the HT A states that members who decline health insurance shall not be eligible to receive a buyout until the declination has been in place for one year. However, practice at the District does not follow the contract terms as declinations tested found that employees received payouts even though they had not declined health insurance for a year.

c) The United Public Service Employees Union (UPSEU) offers health insurance coverage for retirees until the age of 65 whereby the employee will make a 40% contribution based on the hours worked at the District while employed. The District has employees who are contributing based on the coverage they are receiving in retirement rather than based upon hours worked, which does not align with contract language. We understand that this results in a cost savings for the District.

5. Develop procedures to have someone independent review and signoff on the salary bases and covered employees for disability insurance before these invoices are generated and paid each month.

EMPLOYEE HEALTH AND DENTAL INSURANCE

BackfUOund;

Health insurance is both the largest dollar expenditure and the most complicated benefit provided by the District The net cost to the District in 2012-13 was approximately $9.156,000. The vast majority of the costs related to health insurance are based on requirements of the collective bargaining agreements. These agreements define the coverage to be provided, as well as the cost of coverage to be borne by the District and the cost to be borne by the employees. The percentage of costs covered by the employees varies based on the collective bargaining agreements and individual contracts. The allocation of the cost of coverage during retirement is also covered under these agreements and contracts.

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HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28, 2014

Recommendations;

None

LIFE INSURANCE AND ACCIDENTAL DEATH AND DISMEMBERMENT (AP&Dl

Background;

Per various bargaining unit contracts, life insurance and accidental death and dismemberment policies are offered to full time employees from various bargaining units and select retirees. The Benefits Clerk prepares a master listing of eligible employees and retirees who can receive this benefit On a monthly basis, the Benefits Clerk will calculate the amount of insurance needed, input the coverage in the insurance provider's website and generate an invoice for approval and payment The master listing created is attached to the invoice generated that is approved by the Assistant Superintendent for Business and Operations for payment

Summary;

We found that the employees are provided base coverage for life and AD&D insurance based on their respective contract while they are actively employed at the District. We also noted that there were 7 retirees who were receiving life insurance benefits in retirement

procedures;

Our procedures, as per the engagement letter dated February 20, 2014, were as follows:

• Review employee life insurance related activity for the period and select 20 participants in the life and AD&D plan (includes 4 retirees) and perform the following:

- Compare the coverage amounts on the insurance provider invoice (Unum) to the respective employee's contract.

- Verify that the employee deductions, if applicable, were accurate.

Findings;

Review the entire insurance provider invoice to ensure that the coverage amounts for all participants agrees with the contract coverage amounts.

Review of the life insurance provider invoice to ensure that the coverage amounts for all participants agrees with the contract coverage amounts found:

• There was 1 retiree receiving $100,000 in life insurance benefits and the person is responsible for reimbursing the District for the costs associated with their annual coverage. Although the employee has reimbursed the District for 100% of the cost, it was noted that there is no written agreement between the District and the employee stating that he is eligible for this benefit and will reimburse the District for the associated cost.

Recommendations;

We recommend that the District consider implementing the following items to further improve internal controls and operational efficiencies related to administering life insurance and AD&D:

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HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28, 2014

8. Create a contract between the District and retirees to formalize the life insurance benefits arrangements (Le., paid by the District or reimbursed by the employee) be documented in writing.

UNEMPLOYMENTINSUBANCE

Background;

The District incurs costs related to unemployment for individuals who were employed by the District but have been laid off. have been unemployed for more than four weeks. are actively seeking employment and willing to work. The New York State Department of Labor (NYSDOL) will bill the District for its former employees who have filed for unemployment The District has appOinted the Senior Payroll Clerk the responsibility to review all unemployment billings received and verifying that the individuals listed were actually employed by the District After the Payroll Supervisor's review is completed, the invoice is reviewed and approved for payment by the Assistant Superintendent for Business and Operations.

Summary;

We found that the administration of unemployment insurance is adequate.

Procedures;

Our procedures, as per the engagement letter dated February 20,2014, were as follows:

• Select two invoices paid from the 2012/2013 and 2013/2014 and ensure amounts agreed to the general ledger and that the invoice was properly reviewed and approved for payment

• For invoices selected for review, 10 individuals listed were chosen at random to ensure that proper paperwork was filed and that the individual was employed at the District

Findings;

Review of the invoices for unemployment insurance:

• There were no findings or issues noted in our review of unemployment insurance payments. All payments tied out to the general ledger and were properly approved. All individuals tested were former employees of the District and are eligible to receive unemployment.

Recommendations;

None

WORKERS' COMPENSATION

Background;

Workers' compensation is a mandatory insurance that provides employees who become injured on the job with medical coverage and income replacement. The District has contracted with a third party provider, PMA Companies, to administer the plan. All workers' compensation claims are reviewed and processed by PMA Companies and a monthly invoice is sent to the District to review, approve and pay. Payments are reviewed and approved by the Assistant Superintendent for Business and Operations and wire transfers are done to make monthly payments.

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SummaO';

HAUPPAUGE UNION FREE SCHOOL DISTRICT Report on Applying Agreed-Upon Procedures (Continued)

For the Period Ended February 28,2014

The District has adequate control in place over paying. tracking and approving workers' compensation expenditures. They have relied on a third party administrator to process all claims related to workers' compensation, so the claims processing does not have to be done at the District

procedures;

Our procedures, as per the engagement letter dated February 20, 2014, were as follows:

• Review the procedures related to workers' compensation to ensure compliance with the bargaining unit contracts and that employees receiving workers' compensation are employees of the District

• Ensure that all payments were approved and that the claims were properly supported by accident reports and Workers' Compensation Board's Notice of Decisions.

o Select 2 indemnity settlements to ensure that each employee had received a notice of decision and was no longer being paid by the District

Findings;

Review of 8 workers' compensation invoices and 24 individual claims paid (3 from each invoice) during the period and 2 indemnity settlements found:

o All eight workers' compensation invoices were properly reviewed, approved and paid. The wire transfer made to record payment agreed to the invoice without exception and was properly recorded in the general ledger.

o Our review of workers' compensation indemnity settlements found that the 2 individuals tested were being paid by the District as employees during the period in which the Notice of Decision from the Workers' Compensation Board was made. In the decision they were granted partial permanent disability and were awarded a settlement, as well as continuing indemnity payments. Since the District had already made payments to the employee as they still worked while the case was ongoing. the District should have received reimbursement of costs upon the settlement As it turns out, the District was not reimbursed for its costs, which are approximately $10,000, due to the fact that a proper Form C107 Employer's Request for Reimbursement was not filed by the third party workers' compensation provider. Since our inquiry, the District has had the corrected forms filed and should be receiving a reimbursement for costs due back to them.

o In our sample of the 24 workers' compensation claims reviewed, one of the employees selected was also tested in our indemnity sample, which found that the employee was paid by the District and received indemnity settlements for the same time frame. As noted above, a proper Form C107 Employer's Requestfor Reimbursement was not filed by the third party workers' compensation provider. This form has since been amended and filed again so the District should be reimbursed.

Recommendation;

We recommend that the District consider implementing the following items to further improve internal controls and operational efficiencies related to workers' compensation:

9. Develop procedures to follow up with the District's workers' compensation third party administrators every time the District receives a notice of decision on an indemnity settlement to ensure that a correct Form C107 Employer's Request for Reimbursement has been filed by the third party administrators.

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