Lodge Grass School District audit report finds fiscal mismanagement
A 2014-15 audit report of the Lodge Grass School District states fiscal mismanagement has placed them at a high risk of misappropriation. They have, nonetheless, improved overall in spending practices.
The June 30, 2015 audit was directed by Public Accountant Joseph Eve for the purpose of analyzing the district’s financial statements.
“The District has dealt with significant reductions in spending the last two years due to enrollment decreases and staffing reductions,” the overall analysis states. “Enrollment is again on the rise while staffing, revenue and expenditures have stabilized.”
Lodge Grass Elementary School and High School “remain dependent on state aid and federal grant revenue,” the audit report continues, and successfully obtained “construction grant funds the past two years to address the facility needs.”
Most recently, the high school was awarded $175,000 in Montana Coal Board money for reconstruction of their football and track field.
Findings and Responses
The audit reports district management does not have accurate financial information from which to make timely and effective decisions. According to the report, some liabilities accounts are misstated.
These discrepancies, the report continues, were caused by turnover and lack of training in key business positions. The lack of worker experience, as stated in the report, obstructed district efforts to maintain accurate and complete accounts.
In response to this finding, the district has reviewed their account functions. Duties have now been spread out among multiple people to ease the workload, and a review process has been implemented for better internal controls over payroll and accounts payable.
Extracurricular Fund Accounting and Procedures
Funding for extracurricular activities is not being handled in accordance with state policy, according to the report. Funds are at an increased risk of misappropriation, due to the district not implementing policies and procedures in accordance with the state regulations.
Since the finding, the district has updated the Student Accounts system. The district clerk now maintains the system and has reconciled the account each month during the 2015-16 fiscal year. According to the report, the financial consultant now reviews all data on a weekly and monthly basis. Duties will be re-assigned during the 2016-17 fiscal year.
Auditors tested around $51,000, or approximately 1.7 percent, of total payroll expenditures of nearly $3 million and reviewed all payments of the top five highest-paid employees. After reviewing, auditors found six instances where employee timesheets were not approved.
The district has since assigned payroll duties to Jasmine Walks Over Ice, who will also handle human resources.
The Lodge Grass superintendent of schools Victoria Falls Down has taken on the overall management of HR and the district will use a financial consultant to review payroll each pay period. Efforts, according to the report, will be made to document all wage changes and maintain supporting documentation for audit purposes.
“The lack of an effective internal control structure exposes the school to an increased risk of misappropriation,” Eve states. “The district could be overpaying employees; the district has not been ensuring accuracy of hours during processing.”
Employment Eligibility Verification
After examining 33 employee files, auditors noted that none contained Form I-9, which deals with employment eligibility. Employees who fail to provide I-9 forms upon inspection are in violation of the law and possibly subject to civil fines.
The district intends to oversee the I-9 forms, and verify completion and filing.
Employee’s Withholding Allowance Certificate
Thirty-three personnel files were again sampled. Of these files, 11 were missing Form W-4, which allows employers to withhold the amount of employee money necessary to pay income tax. Without W-4s, the district is not in compliance with Internal Revenue Service codes and policies. W-4’s must be retained for possible inspection by the IRS or Montana Department of Revenue.
The District will oversee the W-4 forms and verify completion and the fillings with each personnel file.
Public Employees Retirement System and Teachers Retirement System Elections and Waivers
After examining 33 personnel files, auditors found that 13 are missing documents and are incomplete.
“The District is not in compliance with Montana statutes,” the audit states, “Employees may be improperly excluded from or included in a retirement system without their written consent.”
The district will oversee the Public Employees Retirement Administration and Teacher Retirement System forms to verify completion and the filing with each personnel file and on file with the State of Montana.
Auditors tested nearly $9,000 of more than $110,000 in travel expenditures reported during the period under audit. Results of 25 travel requests show four that were not approved by the superintendent, and two for the superintendent approved by the superintendent. Additionally, nine travel expense reports were not provided to auditors or were improperly approved.
“The district is not following policies and procedures in regards to travel from employees and board members,” the audit report states. “Therefore, there is an increased risk of misappropriation.”
According to the district’s action plan, the accounts payable clerk and district clerk will take further steps to ensure approval of travel claims is obtained prior to issuing reimbursement checks.
Character Background Investigation
Applicants for employment with the Lodge Grass District are required to submit to background checks in accordance with district policy.
Of the 33 employee files selected for testing, 21 did not have a background check on file and 24 did not obtain a signed release consent.
“The district may [have hired] individuals convicted of certain types of crimes that place other employees and students at risk,” the report states. “The district did not monitor each school employee to ensure the individuals meet the criminal record investigation requirements in a timely manner.”
In response, background checks were completed during the 2015-16 fiscal year. The district clerk will, according to the report, work closely with the superintendent of schools to ensure suitability for employment and compliance with board policy.
Prior Period Adjustments
All school expenditures during the last fiscal year were either understated or overstated. The Lodge Grass District agrees with this finding and has taken steps during the 2015-16 fiscal year to close open purchase orders on a timely basis to stabilize district accounting.
Internal Control and Compliance
The district monitoring process on construction contracts in the past has included updates by a project’s architect or engineer periodically during progress meetings.
The district will now require official payroll reports that are certified by the contractor, so prevailing wages and standards are being met.
The district, as part of the budget process, identifies programs and personnel for the academic year that meet specific grant requirements and allowable costs. Goods and services will be more formally reviewed, the report states, to ensure all grant funds are used.
The superintendent of schools and the federal grants coordinator will meet periodically to review allowable costs and ensure the district is complying with activities allowed.
According to the independent auditor report on compliance for each major federal program, the Lodge Grass District cooperated “in all material respects” with the audit.