A CPA firm that represents the Lindenhurst, Deer Park, North Babylon and West Islip school districts, as well as the scandal-ridden Roslyn School District, has been highly criticized in a report released last week by New York State Comptroller Alan G. Hevesi. The report finds that the firm was "so appallingly inadequate that it would shock anyone associated with the auditing profession and taxpayers who depend on the firm to safeguard their money".

"Even a rudimentary review of disbursements and canceled checks would have revealed many instances of wrongdoing," said Hevesi in discussing the work of the firm, Miller, Lilly & Pearce of East Setauket, in Roslyn. "I am extremely troubled by our findings."

The firm represents 250 school districts, statewide, 55 of which are on Long Island. Hevesi's review of Roslyn's books showed that the firm did not meet nine mandatory professional standards for conducting audits. Non compliance with any one standard is grounds for referral to the State Board of Public Accountancy, said his office.

In addition the report found that,

â022when a whistle blower first exposed the fraud in 2002, the CPA firm investigated and found only $223,136 in inappropriate payments. Using the same methodology, state auditors found $1.6 million in questionable payments;

â022the firm did not look at canceled checks, which is a standard practice for audits. Even a cursory review would have revealed instances where the actual payee on the check was different than the payee listed in the firm's workpapers;

â022the firm's workpapers, supposedly created in 2002 and 2003 contained payment information that was put in the district's records by district officials in 2004 to cover up fraud;

â022the firm sold financial and other software to the districtâ014transactions that create a conflict of interest and violate professional standards of auditors to be independent.

A woman who answered the phone at the offices of Miller, Lilly & Pearce last Thursday said that the report was still being reviewed by the firm and that the company had no comment at that time.

Nancy Lenz, a spokeswoman for the West Islip School District said that a discussion of the district's contract with the firm has been placed on the next school board agenda. In the meantime, school officials will be reviewing the report.

Lenz added, however, that the district also has an internal auditor, Marie Alleva, and is currently interviewing for an internal control audit person, a move that she said is unrelated to the issues involving Miller, Lilly & Pearce. Alleva has a background in banking and is responsible for checking paperwork relating to all purchase orders, looking for signatures of those who accepted deliveries and comparing receipts to the deposits made.

In Lindenhurst, the district, which had been served by Miller, Lilly & Pearce, for approximately ten years, changed auditors last year as part of its policy to change external auditors from time to time. Superintendent Neil Lederer said the district had been satisfied with the firm and continues to use the firm's auditing software. "We had not problems with them," said Lederer, adding that the district has a series of checks and balances in place, which include a series of internal controls and the services of an independent auditing firm. "We also had a state review in 2000, which found everything to be in order; we did very well," said Lederer.

North Babylon school officials did not return phone calls at press time commenting on the report. In Deer Park, however, which continues to use the firm, school officials said they took the report "very seriously."

"The Board of Education will carefully review the Comptroller's report before making any decisions on future auditing services," said School Superintendent Richard Organinsiak. "Despite concerns revolving around Miller, Lilly & Pearce, we are confident that the Deer Park School District's financial internal controls are responsible and guard against any fiscal impropriety."

Hevesi's office recommended that school districts throughout the state implement several safeguards, if not already in place, including establishing a citizens advisory audit committee to ensure that audit work and findings receive adequate oversight. In addition, the state comptroller recommends clearly defined responsibilities for the committee, including providing timely oversight of external and internal audit work and requiring the CPA firm to report directly to the Board and Audit committee and the board to prepare a formal response and corrective action plan. Finally, schools should work to improve the quality of their acquired audit services by implementing a competitive process; change audit firms or personnel where appropriate when contract expire or at least every five years and better define the scope of the service in the engagement letter and consider expanding the audit as necessary.

"This (Miller, Lilly & Pearce's work in Roslyn) is a total failure of one of the key safeguards to protect public monies," Hevesi said. "The system of district's hiring independent auditors must be strengthened and augmented by review from he Office of the State Comptroller in order to ensure that adequate financial controls are in place."

To that end, Hevesi asked the legislature to approve $5.4 million to hire 89 auditors to look at every school district in the state regularly.

Hevesi's report was also forwarded to the Nassau County District Attorney's office, which has already indicted several key officials in Roslyn and has an ongoing investigation. "We intend to incorporate this report into the information that we have as part of our investigation," said Katie Grilli-Robles, a spokesperson for the Nassau County D.A's office.

In addition, the report was sent to the state's licensing board and Miller, Lilly & Pearce could face disciplinary charges from that agency, including the restricting or revocation of their licenses.