Incompetency — not criminal or illegal activity — caused a $3.4 million budget deficit that rocked the public trust in Manatee County this September.
In the 2011-12 budget year, the district failed to properly budget for recurrent programs, employee benefits, and teacher salaries because of a flawed process, enacted by former assistant superintendent Jim Drake in 2009, that included trading in the old but reliable computer program that tracked employee compensation and benefits for a new method that produced errors in 17 of 18 schools investigators tested.
But investigators from the global consulting firm Navigant reported that from August to May 2012, not one monthly statement to school board members reported budget shortfalls in any category. Investigators also said Monday that it appeared former superintendent Tim McGonegal, who resigned during the fallout of the deficit, had no knowledge of errors in various budgets until July 2012.
Investigators focused blame on Drake, who oversaw district finances until he retired this past February and interviewed with investigators this fall.“He was responsible for the budget, he managed it,” said Albert Robinson, with the Navigant consulting firm, which conducted the investigation. “As a result, we had to conclude that Mr. Drake failed to provide proper supervision and oversight of the budget.”
The report, which was released at 2 p.m. Monday to the school board and to the public, pins responsibility on Drake, who auditors wrote, "failed to provide adequate supervision and oversight of the budget process which resulted in budget shortfalls that ultimately resulted in the deficit not being detected until after the end of the fiscal year," states an executive summary of the audit.
The investigation found a "lack of adequate management support, oversight and leadership in the budget process," the summary states.
"Based on extensive interview and reviews of documents, the investigation determined that the deficit in the general fund was first suspected in July 2012, during the process of closing the books for FY 11/12, which ended on June 30, 2012," the report states.
Informed of the deficit, then-Superintendent Tim McGonegal and the staff of the finance department conducted a review of accounting records in an attempt to find "accounting errors that could be corrected and eliminate the deficit."
"A deficit of $3.4 million was confirmed on or about August 21, 2012."
During the next two weeks, McGonegal prepared a memorandum to the school board, dated Sept. 5, advising of the deficit.
McGonegal resigned on Sept. 7.
According to the executive summary, the investigation found:
-- A "flawed methodology" and "systems errors" resulted in the budget understating employee compensation at the start of the year by $5.15 million.
-- In February 2012, officials made "adjusting entries" totaling $6.9 million to correct for previous errors in budgets for employee benefits, as well as to establish budgets for major expenses not in the original budget.
-- The decision to not make retroactive the pay cut for employees approved in February 2012 resulted in the general fund absorbing additional expenses of more than $2.37 million.
-- Funding for about 15 elementary teaching positions created to comply with class size requirements was not included in the original budget. Those positions cost more than $926,000.
-- A decision to continue supporting from the general fund programs that had either not been budgeted, were not fully budgeted or had previously been funded by grants. They include the Amer-I-Can anti-gang program, eTech of Manatee and Manatee Technical Institute.
-- A failure to budget for certain recurring expenses.
-- A failure to establish and maintain budget preparation policies and procedures.
-- A failure to conduct detailed analyses of spending trends throughout the year.
-- A lack of adequate staff and automated systems to support the budget process.
The report notes that investigators twice interviewed McGonegal, and once interviewed Drake. They also interviewed all members of the school board when the deficit was discovered.
The report also makes eight recommendations "in order to reduce the likelihood of future undetected general fund deficits."
They include implementing a new accounting systems to provide real time tracking of all employees and vacant funded positions; hiring more staff to manage the budget; more frequent and more detailed financial reports to the school board; and expanding the internal audit department to include analysis of textbook budgets for all district schools.