Audit uncovers problems with Lancaster ISD finances

by Bill Conrad of Lancaster TODAY

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Among the most serious problems uncovered by the audit concerns the district's financial reporting.

The Lancaster Independent School District has a long way to go financially, that is according to the financial audit performed by the accounting firm Judd, Thomas, Smith and Company. The audit was presented to the LISD Board of Trustees at a called meeting Feb. 23.

“Last year there was much improvement from the previous year, but there were still failures in internal controls,” auditor Andrew Moore told the board. “This year we are back to where we were in the 2005-06 school year. You have pervasive failures of internal financial controls. We have to start making sure that what is presented to the board is accurate. The books were in disarray when the audit was started. It was not until December 2008 that the staff was able to make headway in balancing the books.”

Among the most serious problems uncovered by the audit concerns the district's financial reporting. The audit team found that the condition of the 2007-08 books prevented the school board from ever receiving an accurate report on the district's finances.

According to the audit, the bank account reconciliations were over a year behind and that many accounts remained at the prior year audit balances. The auditors said they didn't feel the necessary minimum financial controls were in place, or they were not operating correctly.

“Where do we go from here? This finance department needs to create a different culture,” Moore said. “One where the work of the staff accountants is reviewed by the chief financial officer and the most accurate amount is then taken to the board. I think that the right individuals are in place, but we need to move around some duties. The books need to be closed on a monthly basis. The state made all of those recommendations in the Texas Education Agency audit.”

The audit also found that the district had violated state law by not having the required FDIC insurance on one of its bank accounts. The audit report stated, “Under the terms of the School Depository Act, districts are required to maintain a depository contract with a financial institution to pledge securities to cover the district's deposited funds in accounts at that institution which exceed the amount of the Federal Depository Insurance Corporation Coverage.”

Moore said that at the beginning of the last fiscal year, the district switched banks, moving from Regions Bank to Bank of America. Money was left in the Regions account after the switch, which Moore said was standard operating procedure to cover outstanding checks. Moore said they did notice that after the switch, deposits were still being made at Regions, including money from TEA for state and federal aid.

Moore said that as late as Sept. 23, 2007, the district had $1.03 million in the Regions account with only $100,000 of FDIC coverage. If the bank would have failed, the district would have lost more than $900,000. Moore said that the accounts at Regions have now been officially closed and all money transferred out of the bank.

“The failure was not deliberate, but this is also related to the internal control conditions,” Moore said. It appears that the planning wasn't done to change the account that TEA deposits money into was in the old account. Beginning December 2007, the bank started charging bank fees due to inactivity. The charges were $200 a month, which isn't much, but it does add up.”

One final issue uncovered by the audit was that former employees were still listed as signers on district credit cards. Moore said none of the former employees used the cards and no money is missing, but it is something that should not have happened.

“The credit cards were destroyed after the employee's termination, but all it would take is for them to call the bank and say they lost their card and request a new one,” Moore said. “ This is a significant risk for loss in the district. You need to make sure all assets are taken back and all changes are made at bank and credit card companies when someone is terminated. If it is not a part of policy, it should be. We found one person who left in 2005 who was still a signer on a card. There should have been ample opportunity to make the changes as new people were added to the card.

“At the time of this review, there were two credit card accounts in the district. A dormant account from a past CFO and a card maintained in the superintendent's office. The CFO's card was destroyed, but the account was still open and charges were made to it last fiscal year for supplies. The supply purchase was legitimate and was made by a district employee who had the card information, even though the card was destroyed. The account has since been closed.”

The audit report also raised questions as to whether football stadium operations should be listed as an enterprise account. By definition an enterprise account must be self-supporting, something stadium operations wasn't in 2007-08. It also found that in the past the district has received checks but not cashed them in a timely manner, resulting in the checks becoming void. LISD Senior Financial Manager Mandy Johnson, said the district's deposit guidelines have been changed and this will not happen again.

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