Monday, March 1, 2010
Lancaster ISD board presents “first real audit in years”
The current audit represents the first time in several years the Lancaster school district has information "solid enough to hang your hat on."
LANCASTER The Lancaster ISD board heard and approved the annual report of audit Thursday night. All members voted to approve. The approved report will be sent to TEA a day before the end of the "grace period" of 30 days past the formal deadline.
The opinion of the external auditors was "unqualified" -- that technical term again explained to the board as meaning the auditors believe the district's books present a clear and correct picture of the school system's finances. Those books indicate vast improvement in the district's financial fund balance. The opening balance was presented at the end of fiscal 2008 as only $133,000. That balance improved over the following year, ending August 2009 at slightly over $3 million. In other good news, nearly $700,000 of previously unacknowledged refund obligations owed state and federal agencies has been repaid. The auditors also informed the board that various discrepancies in prior audits had been identified and corrected -- including major corrections that impacted the opening fund balance from the year ending August 2008. The need for such adjustments was, necessarily, presented as a finding in the final statement of the auditor's formal opinion. But that finding, along with others, was described has having been addressed since the August 2009 fiscal year end, and the present time. The $3 million ending balance was even better than budgeted.
TEA Conservator James Damm also spoke to the board and public summarizing the accomplishment. He offered his perspective on the work accomplished by the board and administration over his experience of the past 20 months, and declared the auditors findings "very heartening."
Damm described his tenure, so far, as dividing into three distinct periods: discovery, holding, and correcting. He said that when TEA appointed him that the board knew, and the community knew, what the problems were. But he and the TEA had to discover and document those problems for themselves. During that discovery period, July to December 2008, there were some difficult changes. The superintendent (Larry Lewis) left, and the chief financial officer (Cheryl Peoples) left. The departure of staff from critical financial positions posed a major challenge. During the discovery period, the budgeting and expense management processes were identified for major changes.
After the most immediate necessary changes, Damm reported, he held a view of a district in a mere holding period. This period ran from January of 2009 through May 2009. People arrived, on a temporary basis, to hold things together and take some initial actions. Damm emphasized the fiscal year being reviewed in the audit basically covered these first two, discovery and holding, phases.
Damm described the most recent phase, from June 2009 to the present, as having taken discovery and holding as a basis for correction, and moving forward. The district has arrived at a better position, he assured the board. But, the conservator warned, it is still not where it needs to be or wants to be. While, in his view, the local procedures and financial climate in Lancaster today is "about as good as any district around" ... he challenged the board that they should not be satisfied until they were the best.
The current audit, and current financial reporting system, in Damm's view, represents the first time in several years the Lancaster school district has information "solid enough to hang your hat on." That information is now a valid basis for long range plans. The Lancaster district, according to Damm, is in better posture than many neighboring districts to face potential legislative changes and funding cuts because they have already taken steps to identify hard choices. Having a long view, documented plans, and a board that understands the need to vote "No" even when they would like to be able to say "Yes" will enable the board to continue to build the reserve balance.
Chief Financial Officer Earl Husfeld spoke reminding the board of districts that have spent in a few months reserves that had taken five years to accumulate.
The board and the financial team spent most of the hour discussing various details of the report. A prior year finding regarding timely reconciliation of bank statements to the district's records had not been corrected by August 2009. The district credit card usage and procedures, again, came in for discussion. The audit team had presented a recommendation that would improve, farther, controls over those expenses. A discussion of the special accounts related to school lunch programs and specific reading efforts concluded that prior year concerns had been successfully addressed.
The time pressures on the board for rapid approval of the report were evident. Cynthia Jarvis, in particular, expressed her frustration in not having more time with full documents for this, and prior, years; and not having time to make a detailed comparison. Husfeld revealed that in prior years, the district had paid the former audit team for doing much of the bookwork themselves to prepare year end statements. Those auditors then, in effect, audited their own work. This year, at a savings of over $100,000 in consulting fees and under the supervision of TEA financial conservator Damm, the district financial office closed out and prepared their own final reports. The learning curve on that preparation, Husfeld said, accounts for the extra time needed to prepare the audit report. In the coming year the books will be closed and ready earlier, and a draft of preliminary audit findings available before the Christmas holiday break. Marjorie King elicited a discussion regarding the district's overall capital assets, which appear to be in deficit. An understanding that the "book value" of older buildings, compared to their utility as an education resource, posed accounting issues. The debt of recent construction projects, set against the value of older buildings, was responsible for the negative capital figures. This was agreed as a matter the district can do very little about. Acting Superintendent Marables expressed her appreciation for the hard work of district finance staff, and the sacrifices of time, salary, and supplies made at all levels, but particulary among the district's teachers. She quoted appreciative students of the district, asking the board to "give your heart a clap" for all these contributions and accomplishments.
During Conservator Damm's remarks, he mentioned continuing questions about how long the TEA will feel the need for financial oversight in Lancaster. He said he is not yet ready to set an exit date. He described the night's report as "the first real audit in years." But he assured the board that the audit shows the district making real progress, and that he will so emphasize to the TEA and Commissioner.