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Decision No. 14,502

Appeal of KEITH W. and JANET S. McCART from action of the Board of Education of the Hoosick Falls Central School District regarding capital expenditures.

Decision No. 14,502

(December 5, 2000)

Gunter Dully, Esq., attorney for respondent

MILLS, Commissioner.--Petitioners contend that the Board of Education of the Hoosick Falls Central School District ("respondent") failed to properly approve $7.5 million of capital expenditures. The appeal must be dismissed.

On May 14, 1997, district voters approved a "Capital Project" for $7,489,244 for additions and alterations to the district’s main school building ($6,982,100) and reconstruction of its bus garage ($507,144). Petitioners generally object to respondent's alleged lack of accountability for the expenses associated with this Capital Project. They assert that, at its regular monthly meetings, respondent reviews and approves warrants pertaining to the district's General Fund transactions, but has never reviewed and approved any Capital Project warrants in violation of Education Law "1724. That section provides, in pertinent part:

1. No claim against a central school district or a union free school district . . . shall be paid unless an itemized voucher . . . shall have been presented to the board of education of the district and shall have been audited and allowed . . ..

2. . . . When any claim has been so audited and a certificate thereof so filed, the clerk of the board of education shall draw a warrant specifying the name of the claimant, the amount allowed and the fund, function and object chargeable therewith and such other information as may be deemed necessary and essential, directed to the treasurer of the district, authorizing and directing him to pay to the claimant the amount allowed upon his claim. A copy of such warrant shall be filed in the office of the clerk.

Petitioners assert that since no Capital Project disbursements have been included in any recent district warrants, it is unclear whether respondent's internal claims auditor, who was only appointed in July 1998, has reviewed any Capital Project disbursements. Petitioners allege that, consequently, uncontrolled and inappropriate payments relating to the Capital Project may have been made. Petitioners also state that respondent failed to address findings made by the accounting firm of Wilson & Stark, PC, which conducted independent audits of the district's financial statements for the fiscal years ending June 30, 1998 and 1999. Those findings included statements that the district failed to consistently include disbursements on current warrants, failed to use checks in sequential order, failed to record Capital Fund transactions in a timely manner, and, for the fiscal year ending June 30, 1999, failed to record Capital Fund disbursements on warrants approved by respondent or its internal auditor. Petitioners allege that respondent abrogated its fiduciary responsibility by its inaction. Petitioners also claim that respondent violated Education Law "1709(20-a) by appointing an internal auditor who was directly involved in purchase and finance activities on behalf of the district and by permitting Superintendent Nancy B. Chase's involvement in the review of claims emanating from the Capital Project.

Petitioners request that I order respondent to "obtain an immediate, arm's-length, independent and in-depth audit of all transactions and payments related to the Capital Project by an experienced member of a Certified Public Accounting firm that has no prior relationship with the District, any of the Board Members, or any of the District's employees." Petitioners request an audit of more than two years worth of Capital Project transactions and request interim relief prohibiting respondent from approving Capital Project warrants until the investigatory audit is complete.

Respondent asserts that the petition fails to state a claim upon which relief may be granted and that the appeal is moot. Petitioners' request for interim relief was denied on June 14, 2000.

In their reply, petitioners set forth for the first time additional facts and allegations regarding, inter alia, potential conflicts of interest with the State Education Department, willful violations of law for which members of respondent board should be removed from office, and additional audit items. The purpose of a reply is to respond to new material or affirmative defenses set forth in the answer (8 NYCRR "275.3 and "275.14). A reply is not meant to buttress allegations in the petition or to belatedly add assertions or exhibits that should have been in the petition (Appeal of McCart, et al., 39 Ed Dept Rep 534, Decision No. 14,302). Therefore, while I have reviewed petitioners' reply, I have not considered those portions that contain new allegations or exhibits that are not responsive to new material or affirmative defenses set forth in the answer.

Petitioners also request that I consider additional information that arose at respondent's July 2000 reorganization meeting which they claim was unavailable when the petition and reply were served. While I have reviewed this information because it arose after the filing of the petition and reply, I have similarly not considered any information that does not relate to the issues in the petition or affirmative defenses.

An appeal to the Commissioner is appellate in nature and does not provide for investigations (Appeal of Phillips, 40 Ed Dept Rep ___, Decision No. 14,471; Appeal of Van Zile and Crowell, 37 Ed Dept Rep 213, Decision No. 13,846). Accordingly, the petition must be dismissed.

The appeal must also be dismissed as moot. The Commissioner of Education will only consider matters in actual controversy and will not render a decision on a state of facts which no longer exists or which subsequent events have laid to rest (Appeal of Dale C., 40 Ed Dept Rep ___, Decision No. 14,423; Appeal of Schuler, 37 id. 512, Decision No. 13,915). Although respondent admits that it committed the "technical oversight" of failing to approve Capital Project warrants as petitioners allege, its president, Daniel J. McMahon, avers that respondent established a proper warrant procedure at its June 2000 meeting. In addition, Mr. McMahon avers that at that same meeting, respondent determined to solicit a Request for Proposals ("RFP") to various independent accounting firms to conduct a comprehensive review of the Capital Project. Accordingly, since an audit is slated to occur and respondent has recently instituted a proper warrant procedure, the relief sought by petitioners has been accomplished.

Even if it were not moot, the appeal would also be dismissed on the merits. In an appeal to the Commissioner, petitioners bear the burden of establishing all the facts upon which they seek relief (8 NYCRR "275.10; Appeal of Alexander, 39 Ed Dept Rep 265, Decision No. 14,232) and demonstrating a clear legal right to the relief requested (Appeal of Logan, 38 Ed Dept Rep 694, Decision No. 14,120). By letter dated May 31, 2000, Wilson & Stark, the accounting firm hired by respondent to conduct the above described audit, stated that for the fiscal year ended June 30, 1999, "Our assessment of the internal control over the Capital Project Fund caused us to increase our audit to include 100% of the evidence supporting Capital Fund Expenditures. Due to the fact that the Capital Fund Expenditures were supported by all other documentation, we determined that the compliance and internal control issues could easily be corrected by Board action." While that statement does not apply to the expenditures incurred during the fiscal year ending June 30, 1998, petitioners have failed to produce any contradictory evidence demonstrating that respondent made inappropriate or unsupported Capital Project expenditures in either year.

I must, however, admonish respondent for its failure to comply with the statutorily mandated warrant procedure. Such failure constitutes a significant, not a "technical" oversight. Moreover, it has apparently contributed to the continued distrust and frustration of at least some segments of the community with respondent’s operation of the district. I expect respondent to comply with all appropriate financial and reporting requirements in the future. To this end, I have requested Department staff to monitor respondent's future compliance and I direct respondent to submit the completed Capital Project audit pursuant to the above-described RFP for Department review. Furthermore, my Counsel's Office has learned that the Office of the State Comptroller began an audit of the district on October 16, 2000, which the Department will monitor as well.