Friday, October 5, 2007

Texas Education Agency to audit Lancaster ISD

By Brian Allen of TODAY Newspapers

The Texas Education Agency ended months of speculation recently, announcing it will send auditors to the Lancaster School District.

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TEA Acting Commissioner Robert Scott cited Lancaster's low fund balance and a pattern of seeking short-term loans as reasons for the visit.

TEA recommends districts maintain a minimum fund balance of $8 million. Lancaster school's fund balance is under $1 million. The district has taken out several short-term loans or “bridge” loans in recent years, including a $6 million loan this spring.

Superintendent Larry Lewis has said the loans aren't a sign of financial hardship, but a necessity due to the changes in the state's payment schedule to school districts. In 2003, the state moved an August payment to September.

Lewis has also said his administration inherited a debt load that even the board of trustees was unaware of the full magnitude of. He said when he arrived in 2003, the board thought the district was a few hundred thousand dollars in debt. That number turned out to be more than $5 million by Lewis' count.

LISD's finances came under intense scrutiny in January when the district missed the deadline to file its internal audit with the state. Andrew Moore, the chief auditor charged with reconciling the district's books, blamed bad accounting practices.

Those bad accounting practices caused LISD's general ledger to be off by $14 million. Moore said the money was all there, but had not been properly accounted for.

“At this point, we have found no instances of fraud, theft or any other misappropriation of assets,” Moore said when he presented his findings to the board April 9. Moore did acknowledge “significant problems in the financial reporting area of the district.”

Moore said a switch in the district's financial accounting software for the 2006-07 school year further augmented the problem. The superintendent said he didn't learn of the accounting breakdown untl Dec. 22 when Fred Smith, a partner in the firm of Judd, Thomas, Smith and Co. (the company performing the audit) told him they couldn't get a general ledger. Lewis was under the impression the auditor had gotten the ledger in October.

Smith then asked Lewis what he had done about a “$3 million phone call” from then LISD Chief Financial Officer Eugene Smith.

Lewis told the auditor this was the first time he had heard of any such call. Fred Smith said the district's CFO had discovered a $3 million shortfall he couldn't account for.

Fred Smith said he advised Eugene Smith to call Lewis. Lewis said that conversation never took place. The superintendent said he traced the $3 million in question to a loan the CFO didn't take into account.

Smith is no longer with the district. After the $3 million phone call came up in board of trustees' discussion, Lewis said the responsibility for the whole situation rested on his shoulders.

The infamous phone call delayed the ledger's reconciliation and thus the audit until the first of the year. This placed it right in the middle of tax preparation season, all but guaranteeing its lateness.

Fred Smith said Lewis asked the firm not to rush the audit, but instead to prioritize accuracy. When Smith made his presentation to the board in May, he reiterated his firm's stance that there was no fraud or mismanagement in LISD. The worst thing about these reports, he told the board, was their lateness.

“There are no secrets, no witches in Salem,” Smith said. “It's all right here.”

The late audit had consequences at both the state and local levels. In Austin, it yielded an automatic substandard status for LISD on the state's financial rating. Locally, it was a rallying cry for opponents of the LISD bond package on the May election ballot. All six bond package proposals were soundly defeated.

In addition to the bond package defeat, the political climate on the board shifted as well. Board President Nannette Vick (a vocal supporter of Lewis) lost her seat to Dr. Marjorie King. King said she ran at the urging of citizens upset with the way things were going in the district. Carolyn Morris, Lewis' most outspoken critic, won reelection handily.

But the superintendent was still a lightning rod for controversy. Lewis made news throughout the Metroplex when he proposed switching to a four-day school week. Parents decried the timing of the schedule change, roughly a month before school started. The timing led critics to believe the district was trying any way it could to shave expenses. Lewis initially said there would be cost savings but later said any financial savings would be small at best.

He pushed forward, saying the four-day school week was the best thing for LISD students academically. Parents vehemently disagreed, and hundreds of them packed into the high school auditorium to protest it. Most said they hadn't received proper notice of the board meeting where the proposal was approved.

Morris said she didn't even know what the board was voting on until the meeting began.

Lewis withdrew the board's request for a waiver to change the district schedule after TEA heard his proposal. Even after Lewis stated the case for a four-day school week in Austin, the TEA submitted a list of numerous questions.

Among them were questions asking Lewis to submit any research he had indicating academic benefits from a four-day school week, and questions regarding posting of the agenda that contained the schedule change vote.

After receiving these questions, Lewis said a contract issue with teachers couldn't be resolved in time for the start of the 2007-08 school year. He said LISD would form a citizen committee to investigate the schedule change further and the district would resubmit its request.

The four-day school week brought even more attention to, and speculation about, the district's finances. LISD's latest budget glitch only turned up the spotlight.

In August the board voted to set its property tax rate before it approved the district's budget. State law requires school boards to approve the budget before the tax rate.

At that meeting, Morris again questioned whether citizens had proper chance to give input. She said there was no public hearing on the agenda, with Lewis countering that the meeting's agenda had been posted according to state law.

The debate became a moot point when the board had to vote on the tax rate again.

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