UPDATED: Garland and Lancaster ISDs come up “substandard” in Financial Integrity Ratings

by Jeff Melcher

Today, the Texas Education Agency published the results of the Financial Integrity Rating System of Texas (or F.I.R.S.T.) scores. Region 10 / Dallas county school districts generally faired well. The typical district earned a "Superior Achievement" rating.

Two area school districts failed the tests. Garland ISD and Lancaster, as expected after long delays in submitting their 2005-06 annual financial reports of audit, were branded as "Substandard" in their accounting and financial stewardship procedures.

The F.I.R.S.T. tests are a series of 21 yes or no questions which indicate success on various financial indicators. Filing annual reports on time is considered a "critical" indicator and failure to file by deadline -- even if that is the only "no" indicator on the F.I.R.S.T. forms -- is sufficient grounds for the TEA to issue the SUBSTANDARD warning. This is "Indicator 3". Both Garland and Lancaster however had other problems.

Garland had 2 negative indicators. GISD also reported "No" on "Indicator 5" -- "Did The Annual Financial Report Not Disclose Any Instance(s) Of Material Weaknesses In Internal Controls? " The Garland outside audit team found the district had "weak internal controls" in their bookkeeping. And this, in the judgement of the audit team, rose to the level of a reportable condition. Any such reportable condition results in a "NO" value on F.I.R.S.T. indicator 5.

The Lancaster audit, also much delayed, made note of similar "weak internal controls". But, Lancaster's auditors found that in their judgement the finding did NOT rise to the level of seriousness warranting a "reportable condition." This judgement call in the favor of the Lancaster ISD left the district able to claim a "YES" score on Indicator 5.

Lancaster had a total of six negative indicators. In addition to the Indicator 3 (late audit) problem, the district reported "NO" on indicator 18 ( for insufficient fund balance") on 19 (for a rapidly declining fund balance) and on indicator 20 (the cash on hand) Indicator 20 formally asks "Was The Aggregate Total Of Cash And Investments In The General Fund More Than $0? " Having zero or negative entries in the books for cash or cash equivalents at the end of the fiscal year is analogous to being overdrawn on a personal checking account. Having budgeted for 8 million dollars more in state funding for 2005-06 than the 15 million the state actually contributed, the district had significant shortfalls during the fiscal year.

Indicator 15 tests whether or not a school district is spending excessive amounts on administration. The allowable percentage varies based on the composition of the district. Typically 12% or so is acceptable. Lancaster ISD reported spending 16.28% in 2005-06 -- failing the standard of 12.5% by 2.75%

The failure on Indicator 15 marks another trend. This is the fourth straight year of increasing administration cost ratios. Previous years range from an acceptable below 9% in 2003-04 thru 11.4% and 12.8% the past two years.

An apparently unrelated problem is reported on Indicator 7. This is the 3rd year in a row Lancaster has failed to pass a "Data Quality" test. The formal wording is "Did the Comparisons of PEIMS Data to like information in Annual Financial Reports Result in an Aggregate Variance of Less than 4 percent of expenditures per Fund Type? " This measures that numbers recorded on the local finance records agree with the Daily Attendance and student classification records posted to the state's Public Education Information Management System ( PEIMS). In the 2002-03 school year prior to current Superintendent Larry Lewis arrival in Lancaster, the district succeeded on the indicator. The 2002-03 score was 0.0049 (less than 0.04). Each year since Dr Lewis's administration took over, the results have gotten worse.

In his first year, 2003-04 the variance rose to 0.1073 -- 6 percentage points higher than the tolerance. In 2004-05 the variance was 1.2102 and last year the measure rose to 1.4268.

The two offices on either side of the imbalance, accounting and PEIMS, have both seen recent personnel changes. Eugene Smith left the district's finance office in January of 2007 and Greg Long left the PEIMS section this past summer. It is not year clear which, or if both, introduced the variant data.

School districts are required by law to hold public hearings on their F.I.R.S.T. rankings a month after publication. No doubt both Garland and Lancaster will have inquisitive Trustees and members of the public asking some difficult and embarrassing questions.

This story was submitted by a member of the Pegasus News community.

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