Audit Uncovers Huge, Systemic Problems at County Office of Education

The Santa Clara County Office of Education has instituted reforms in its spending and accounting of public funds, such as employee credit card use, after a 2013 audit uncovered deficiencies in its financial statements, a board official said today.

Micaela Ochoa, chief business officer for the office, which oversees the county’s 31 school districts and employs about 1,700 people, said a new auditing firm that replaced the one the agency had used for 19 years uncovered the gaps in its financial controls.

The San Jose-based office incorporated recommendations from the auditor, Nigro & Nigro of Murrieta, Calif., including changes to the handling of charges on employee credit cards, reports on the spending of public money and better oversight of contracts with vendors, Ochoa said.

“We were very positive and very open and saw it as an opportunity to improve our operations with the audit from Nigro & Nigro,” Ochoa said. “We appreciated their thoroughness.”

The audit, completed last December and sent to the county Board of Education, found there was “an excessive” number of credit cards issued to office employees with “numerous instances” where purchases lacked itemized receipts or other documentation, according to Nigro & Nigro’s report on the board’s website.

Some employees charged things on the cards, also known at P-cards, in excess of the county’s limit of $2,500 a month and the auditor found that “multiple employees beyond the authorized cardholders are making purchases on the cards and notifying the cardholder after the fact.”

In a number of cases, employees bought items with county-issued P-cards and sent them to their home addresses, some used them to pay dues and membership fees while others made “large purchases for groceries” for which the auditor could find no business purpose, according to the report.

“We noted numerous large, routine purchases that should have followed the normal purchasing process,” the auditor wrote.

“We noted the purchase of alcohol on one occasion.”

The auditor also discovered the office had signed two contracts, totaling $17 million in public funds each, with medical health insurance providers since Oct. 4, 2004, when the county Board of Education’s written policy states that all contracts of $250,000 or more must be on the board’s regular meeting agenda for study and approval.

Nigro & Nigro recommended that the board restrict the authority of education office employees to enter into low-level contracts and enforce board policy requiring the office’s superintendent or representative sign off on all contracts over $100,000.

In a spot review of receipts for 20 cash deposits, the auditor noted 10 instances of inadequate supporting documentation from the point of collection to deposit and “we could not verify whether all cash collected had been deposited intact and to the correct accounts.”

While examining the office’s payroll system, involving details such as employee salaries and taxes, there were reports of errors and the sharing of passwords between staff members processing the payroll, the auditor reported.

That prompted the county superintendent in October 2013 to hire an outside consultant to review the security of information technology and other aspects of the payroll and the human resources department, the auditor said.

The extent of the errors in the payroll system could not be determined and “the auditors could not quantify the potential for penalties, taxes and fees associated with errors in processing,” the auditor stated. “We recommend the county perform a thorough investigation of the payroll and human resources function,” Nigro & Nigro stated.

From a review of the office’s purchasing processes, “we noted numerous instances where invoices were dated prior to the requisition approval date” indicating things were bought before they were authorized, the auditor stated.

Ochoa said that among the changes the office has made since the audit is requiring employees to submit itemized receipts for expenses.

“If you don’t have a receipt, you don’t get reimbursed,” she said.

The office has upgraded its manual on the use of P-Cards and employees and the managers who approve P-Card payments now must attend mandatory training on rules for using the cards and sign an agreement to abide by the rules, Ochoa said.

The agency now has “much more monitoring the oversight of P-Cards,” Ochoa said.

Also, more employees must be included in approving and signing contracts worth $35,000 or more within the office, she said.

In 2012, Ochoa in her capacity as chief business officer, decided there should be “a fresh pair of eyes” on the office’s books after thinking it was odd that the auditor the office used for 19 years did not report any problems in 2011.

She asked for requests for proposals from auditors, selected Nigro & Nigro and requested them to look specifically into P-Card spending which has “always been an area where I have been sensitive to,” she said.

In the case of the large amount of groceries bought by employees reported by the auditor, it turned out it was a legitimate expense for an outdoor kid’s camp, she said. But the employees should have received advance approval, Ochoa said.

“The point is, you can’t do that,” she said. “It has to go through the financial system, not just using your credit card.”

--Bay City News