Audit finds more problems in Manatee County school district's budget

eearl@bradenton.comApril 7, 2013 

MANATEE -- The latest audit of the Manatee County School District's budget shows the district mishandled federal funds that included Title I grants earmarked for disadvantaged students and special education funds, and wasn't contributing enough money in its accounts to cover its worker's compensation obligations.

The district also misused money earmarked for the construction of its new Manatee Technical Institute, the external audit found.

Manatee County school district officials, who admit there needs to be more visibility and better tracking of the federal funds, say they are working with the Florida Department of Education to fix the problems and ensure that they don't face federal sanctions or fines, which could total millions of dollars.

The latest audit, conducted by Mauldin and Jenkins, found "significant deficiencies" in the way the school district handled federal and state funds. The report indicates that the district could face severe consequences if officials do not make improvements in how they manage federal contributions.

While all of the issues could have dire consequences for a district already struggling under a $3.4 million deficit and depleted reserves, Manatee County school officials have at least six months to respond to the problems uncovered in the audits and come up with a plan to remedy the issues. It could have as long as two years to repair its problems.

Michael Boyer, chief financial officer for the school district, said Manatee County is working with the Florida Department of Education to repair accounts and replenish funds before any punitive action is taken against the district.

"We are working together, and they will allow us to provide additional information as requested," Boyer said. "Now our goal is to have measures in place as quickly as we can to avoid future occurrences."

The audit, set to be reviewed by the school board Monday, found that cash deficits in the Title I programs forced the district to use other funds to cover the federal program's costs. Because the account funds varied so drastically -- from a balance as high as $813,000 in Title I accounts, to a $1.1 million deficit -- it was clear the district is not requesting federal funds correctly and had to use district funds to cover deficits at times, according to the audit report. Auditors said the district must improve its cash management procedures to stabilize the accounts so there are not such wild swings in surpluses and deficits.

Boyer said the district has already begun to fix those issues.

"We have put procedures in place to give the ability for more timely receipts," Boyer said. "We will have a better assessment of funds and a counter measure in place."

But it wasn't just Title I funding that saw unexpected swings. The funds for special education had a cash balance as high as $828,000 at one point and then saw a deficit as large as $1.5 million. The district's special education funds also saw a troubling and unexplained drop from one year to the next, according to the audit report.

According to federal regulations, the amount of state funds the district spends on special education during the audit period must be equal to that of the prior fiscal year. The only exception is if a school sees a large fluctuation in the number of special needs students enrolled in the school and therefore a fluctuation in the number of school employees working with the students.

Auditors found a nearly $370,000 drop in funds from fiscal year 2010-2011 to the 2011-2012 fiscal year. Under federal regulations governing special education, such decreases are only allowed when there is a decrease in enrollment of students with disabilities and the departure of special education personnel, or when the district no longer has to pay for long-term costs.

That didn't happen in this case, as the auditors found the "District did not have procedures to monitor compliance" with its special education requirements during the last fiscal year.

"Without procedures to monitor applicable maintenance of effort requirements, the risk increases that state and local funds will not be properly allocated and expended for special education services," the audit states.

Boyer and Angela Fraser, the school district's finance director, said the district is installing accounting controls to be used for the special education funds.

"There needs to be more visibility around these funds, and better tracking is needed," Boyer said.

The audit also revealed that the school district's workers' compensation insurance contributions were not consistent with federal policies.

The general fund was not charged the correct portion of workers' compensation costs according to the Florida Department of Education standards, resulting in a $2.4 million deficit at the end of June 2012. Mauldin and Jenkins recommended that the general fund reimburse the workers' compensation self-insurance fund $824,000 to cover the costs "or else the District needs to reduce the workers' compensation contribution rate proportionately for all positions for the 2011-2012 fiscal year, then recalculate the required contributions of each fund, and then refund the federal grantors for the amounts they were overcharged."

The district didn't allocate its compensation costs in a consistent manner. For example, the workers' compensation contribution the district paid for custodians was less than 1 percent when it should have been more than 9 percent.

Boyer and Fraser said the district has opted to adjust workers' compensation contribution rates proportionately and therefore return some federal funds in an attempt to have a minimal impact on the general fund as they work to overcome the budget deficit.

Other findings in the audit included vacation payouts in excess of the 60 days the state allows to employees who were retiring or leaving the district. Last year alone, that amount totaled an extra $34,000 in payments. So far this year, the district has paid out an extra $30,000.

The district also used the state's Public Education Capital Outlay Funds to repay principal and interest on debt, which is not allowed according to federal tax regulations. In two years, the district used more than $700,000 to make debt payments.

The district also used state construction funds for its new Manatee Technical Institute inappropriately. Funds requested in the 2010-11 fiscal year for the construction of MTI were still not spent on the project by the end of June 2012.

"Funds available on June 30, 2011 were $3.3 million," according to the audit report. The district spent $2.4 million on the project in the following fiscal year, but then requested an additional $1.2 million, leaving a balance in the district's MTI construction account of $2.1 million by the end of June. Mauldin and Jenkins recommended that the district replenish the state's capital outlay funds "for unauthorized debt service payments and use the PECO funds for their intended purpose, or pay back all unused funds to the Florida Department of Education."

Fraser said these funds have already been replenished from a different capital fund that allows debt service payment. But she could not specify which fund. Boyer said the repayment did not come from the general fund.

"Boyer is trying to put measures together to ensure accountability," said Bill Vogel, the former superintendent of Seminole County and Manatee citizens advisory group member.

Vogel said he had not read through the full report from Mauldin and Jenkins yet.

Also on Monday, the school board will discuss implementing a nepotism policy that would prohibit the appointment of district faculty's relatives.

Vogel said that Manatee County is one of the few school districts without a nepotism policy. Karen Carpenter, chairwoman of the school board, said such a policy will raise the level of professionalism in the school district.

"If there are no policies in the work place, you end up with reduced morale and people feeling like they are not being fairly treated," Carpenter said.

The audit committee suggested the policy be put in place last year, but Carpenter said the school board is just now moving forward with it.

Carpenter said the district will be making a lot of changes, both financially and organizationally.

"We need to do a better job, and this is a step," Carpenter said.

Erica Earl, education reporter, can be reached at 941-745-7081. Follow her on twitter @ericabearl.

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