State Comptroller Thomas DiNapoli’s Office released a scathing audit Tuesday, sharply criticizing the Niagara Falls City School District for “failing to protect the interests of taxpayers” by letting district employees and administrators collect hundreds of thousands of dollars in improper payments.

“The school district let taxpayers down,” DiNapoli said in a written statement.

Among the problems cited in the audit, DiNapoli said Superintendent Carmen Granto was incorrectly paid for possibly more than 300 vacation days, the district overpaid 272 employees by more than $500,000 and at least $30,000 more was wasted because of financial mismanagement and improper payments to employees and contractors.

Spokespeople for DiNapoli also signaled criminal action is possible in response to the audit’s findings, but said it would be “too speculative” to discuss specific charges at this time.

“Comptroller DiNapoli’s investigation unit is working with federal authorities to review the matter,” spokeswoman Emily DeSantis told the Gazette. Spokesman Dennis Tompkins confirmed the audit revealed “there’s a possibility that criminality occurred.”

As part of DiNapoli’s School District Accountability initiative to audit all 834 school districts statewide by 2010, the office reviewed Niagara Falls documents from July 1, 2005 through Dec. 5 2007, though earlier documents were used in some instances.

Vacation days or not?

In the report, auditors said Granto received an average of $22,000 yearly for unused vacation days, although it appeared some vacation days had actually been used.

The comptroller’s office determined that since 1994, Granto had not officially taken a vacation day until March 2006, a year when he took 21 vacation days. Granto’s contract entitles him to 45 vacation days and allows him to collect lump sum payments for accumulated leave time.

“Generally, the superintendent requested these payments early in the school year, well before it could be confidently determined that no vacation days would be used for that year,” the audit said.

Employee interviews indicated Granto had regularly vacationed in Florida every spring, but it could not be confirmed by auditors because district Information Technology employees said the files from Granto’s electronic calendar were corrupted.

In 2004-05, Granto took 21 unreported vacation days, according to his calendar, but received a $23,184 lump sum for 45 vacation days, resulting in $10,800 undue payment.

“Since the superintendent told us he has taken his family vacation in Florida for many years,” the audit said, “it is probable that this same exception extends for several years previous, for which calendar entries were corrupted and could no longer be accessed.”

Granto told the Gazette Tuesday the overpayment was the result of miscommunication between the human resources and payroll department and all undue leave time from 2001 through this year has been reimbursed.

“It was taken care of five minutes after (the auditors) told me that (payroll) had overpaid vacation time,” Granto said. “I told them to take it out of my vacation time this year, I had 45 days coming this year. And then I paid back the rest, around $10,000.”

In a 20-page audit response, Board President Robert Kazeangin said “prior determination indicated (Granto’s) leave records appeared to be in order,” but upon learning from auditors he had been granted 70 excess days of vacation leave, Granto reimbursed the district.

Despite skepticism inferred in the audit that Granto hadn’t taken a vacation day for several years, Granto told the Gazette he did not take vacation days from 1992 through 2000, which entitled him to the lump sum payments he received.

“I had consulting days — 25 of those a year,” he said. “I had board travel days. And we were building the high school from 1992 through 2000 — it was a busy time.”

The $500,000 computer glitch

Auditors also cited an error in which 272 salaried employees were overpaid by more than $500,000 in the 2005-06 school year.

In February when the Gazette learned of the overpayment and spoke to district officials, they called it an accident and blamed it on a computer glitch which resulted in 27 weeks of payment, rather than 26.

But auditors wrote that then-Business Administrator James Ingrasci created a separate job code with which the 27th payment would be charged to “override the payroll system.”

“Deliberate action was taken to generate this additional pay and existing internal controls were intentionally circumvented to allow this to occur,” the audit said.

The audit recommends the district “take disciplinary action against” Ingrasci but Granto said it is “too late now” because he is no longer employed with the district. Ingrasci announced earlier this year he planned to retire in January but abruptly left his post in August.

A message left on Ingrasci’s cell phone was not returned late Tuesday.

According to Kazeangin’s official response, all but nine overpaid employees had agreed to a reimbursement plan, which includes having money or leave time subtracted from paychecks. Those outstanding nine will face legal action if they do not return the money, Granto added.

The overpayment affected 12-month salary employees including civil service employees, teachers, administrators and superintendent-level employees.

Other audit findings:

• Former Human Resources Director Esther Isler Hamilton continued receiving paychecks for six months after she finished her duties, using a combination of vacation days, personal days and holidays. She stopped working with the district in June 30, 2005, but did not retire until July 7, 2006. In total, she received $24,615 in improper payments.

In the board’s official response, Kazeangin disagreed with the auditor’s findings and said she was only paid for leave time in which she was entitled.

• Twelve individuals were inappropriately paid as independent contractors, totaling fees of $543,600. They should have been treated as employees where compensation would result in taxes being withheld.

“Although the district respects (the comptroller’s) opinion concerning the 12 individuals, it disagrees the 12 should be treated as employees,” Kazeangin wrote, citing a lack of set work hours or benefits.

• District credit cards were assigned to 38 employees. The comptroller’s office reviewed $630,000 worth of credit card purchases and found that poor documentation resulted in the district paying more than $5,000 in late fees. Auditors found 26 instances of people other than designated cardholders making purchases. Granto used his card for $2,200 in travel for personal consulting work with no evidence he reimbursed the district.

Kazeangin wrote that Granto has since reimbursed the district for his travel. Granto added that since the audit, the district has ceased use of credit cards by its employees.

• The district did not competitively bid on 24 purchases made from seven vendors, totaling $195,000. No documentation was provided indicating price quotes for 28 of 29 purchases, totaling nearly $186,000. Auditors concluded district staff “regularly circumvented purchasing controls.” The district is addressing deficiencies in proper bidding, Kazeangin wrote.

• Ten employees, consisting of two human resources directors, a deputy superintendent, two project managers, an employment coordinator and four grant specialists, received salaries totaling $964,099, plus benefits — none of which were authorized by a written agreement or board policy. Proper contracts have since been approved by the board, Kazeangin said.

• Attorney Maria Massaro was determined to have been paid as a district employee, despite functioning as an independent contractor. DiNapoli’s office announced in May it had revoked her state pensions and Massaro appealed, which is pending.

• The district has used the same external auditor since 1973 and said it had submitted requests for proposals but the auditing firm was consistently the lowest. State auditors, however, found no evidence of requests for proposals and said the auditing firm failed to identify “vital” deficiencies.

The next step

Within 90 days the district must submit a corrective action plan, addressing the comptroller’s recommendations, which include recovering all improper payments and creating stronger internal controls.

Granto said the district has been implementing corrective action as problems have popped up during the audit and, “of the 33 recommendations, we’ve implemented all of them.”

“We’re grateful for the audit, and I mean that sincerely,” Granto said, noting the last state audit was in the 1970s.

“Whatever has to be done has to be done. It’s unfortunate it happened on my watch and I hope to clear it up with the board before I leave,” he said. “During all those years, we had external auditors telling us things were all right — that’s no excuse but you just got to do it right and we’re going to do it right.”