Audit blames employee for budget deficit

 

Audit blames employee for budget deficit

 

Date: January 16, 2013
by: Josh Siegel | Staff writer

 
 

 

 

EAST COUNTY — As Navigant employees explained their 200-page-plus audit report to the public for the first time at a Jan. 14 workshop, Manatee County School Board members sat back in their chairs, silenced, and took in the reality of the moment.

Auditors blamed former Assistant Superintendent Jim Drake for the Manatee County School Board’s 2011-12 $3.4 million budget deficit but faulted him for incompetence — not criminal or illegal activity.

Albert Robinson, of Navigant, formerly with the FBI, said former Superintendent Tim McGonegal, who resigned in September when the deficit was announced, had no knowledge of errors in budgeting until July.
But, in January 2012, McGonegal had requested Drake’s retirement, due to continuous budget mistakes. Drake retired a month later. Michael Boyer, the district’s chief financial officer, was brought on in May 2012, at which time he assumed oversight of the budget.

But Drake was responsible for the budget as its direct manager, investigators said.

Robinson said Drake had installed a flawed labor-intensive computing process to replace a reliable real-time method — which had been in place for 10 years — that tracked employee compensation and benefits.

The flawed process resulted in the district failing to properly budget for employee benefits, teacher salaries and recurrent programs such as Manatee Technical Institute.

It produced errors in 17 of 18 schools the auditors tested.

The report, compiled from more than 30 interviews — including ones with Drake and McGonegal — hundreds of budget entries, financial statements and emails, found a “lack of proper management support, oversight and leadership in the budget process.”

After being alerted to the deficit, McGonegal and finance department staff reviewed accounting records to find errors that would eliminate and correct the deficit.

A deficit of $3.4 million was confirmed on or about Aug. 21, 2012.

Then, over two weeks, McGonegal prepared a Sept. 5 memorandum to the school board, revealing the deficit.

Charles Harris, of Trenam Kemker, the Tampa law firm that hired Navigant, said the audit found no evidence of embezzlement, nor that McGonegal had purposefully delayed letting the board know about the deficit.

Harris said the failure of McGonegal and Drake to act quickly after discovering problems was enough reason to fire them, if they hadn’t resigned.

The downfall of the district’s finances began when Drake enacted the failed computer system, which resulted in the original budget for employee benefits being understated by about $5.15 million and employee pay by $4.2 million.

Those two accounts equal 80% of the district’s budget.

Drake admitted he failed to monitor the new system, which included a salary-projection worksheet that involved selecting the payroll for all employees during a monthly period — a snapshot — and projecting it out.

Errors included the number of teacher positions listed per school and incorrectly deducting 305 custodian jobs from the worksheet.

The other component to the new computer program, one called index allocation, was meant to track benefits. However, benefits were understated due to an error in the software code.

Drake blamed a hectic schedule, including responsibilities in the finance, food service and transportation departments, that prevented him from focusing on the duty McGonegal had assigned to him — managing the budget.

In February 2012, adjusting entries totaling $6.9 million meant to correct previous budget errors and to establish budgets for unbudgeted items — including 15 newly hired elementary-school teachers — further added to the deficit.

That mid-year budget cleanup, a routine process done annually and intended to adjust all negative balances to zero, was supposed to occur in December 2011, a time of the year when there’s more flexibility to change the budget.

Typically, offsetting any deficit would come from a district’s reserve account.

In prior years, Manatee Schools, instead, took money from benefits, but with the account dry, finance personnel decided to pull from the already-understated compensation budget.

If the district had taken from the reserve account, as they should have, Navigant said, the board would have noticed the dramatic adjustment. However, the board never saw the compensation budget.

More unaccounted money came from textbooks. McGonegal discovered $672,716 in unbudgeted books, after hearing from parents and teachers that high schools did not get money for books.

High schools do get money for books from the state, but schools also get a quota to purchase their own. District high schools did get half of that quota, so McGonegal’s nearly $700,000 adjustment was an inaccurate amount. He had assumed the schools received nothing.

Twenty-three of 50 schools started 2012-13 with a negative balance for textbooks, because the district failed to offset the deficit the year before with reserves.

Additionally, the district failed to budget three reoccurring, predictable programs, a fact Robinson called inexcusable, including Amer-I-Can and eTech of Manatee.

MTI had its budget set up at the end of 2011-12 and was underbudgeted by $1 million.

All of it became worse as the board remained uniformed — though unintentionally.

Monthly financial statements from August 2011 to May 2012 presented to the board said expenses didn’t exceed the budget.

In fact, from August 2011 to April 2012, the monthly balance sheets for the general fund reported an excess of revenue over expenses.

In early 2011, the board began receiving quarterly estimated revenue and expenditure reports. The board, however, usually saw those reports months after they were reported.

When they were reviewed, minutes of meetings showed discussion was minimal.

The slow reaction time and minimal communication all stemmed from a lack of written policies and procedures for the preparation of budgets and insufficient staff and automated systems to manage it.

The poor coordination meant teachers were hired even when staff was unsure if they had the money to pay them. It also meant staff tackling more than one job — sometimes for ones they weren’t qualified.

It even resulted in, as recently as June 8, 2012, McGonegal informing district employees that he anticipated a budget surplus. At the time, he had proposed a 1% bonus for staff in 2012-13.

That fact, found through email, was enough to show investigators McGonegal hid nothing.

A man known for his hands-on approach and for his mastery of budgets had became too hands-off, Navigant found. He had given budget oversight to Drake — who admitted to Navigant budgets weren’t his strength.

As the results of the report set in and Robinson offered eight recommendations to avoid a similar catastrophe in the future, Manatee School’s Interim Superintendent David Gayler did not address the report directly and asked no questions about it. He said he had anticipated some of the findings and had already begun addressing Navigant’s recommendations.

“I have one interest,” Gayler said, his voice rising. “And that’s moving the district forward.”

In her closing remarks, Manatee County School Board Chairwoman Karen Carpenter said it would be a long time before the audit report would be forgotten.

“I’m encouraging you, when something goes wrong, say it,” Carpenter said. “These mistakes have overshadowed every good thing in the district.”

Contact Josh Siegel at jsiegel@yourobserver.com.


ERASING FUTURE OVERSIGHTS
Eight recommendations Navigant offered to reduce future likelihood of undetected funds:

• A semblance of the old, real-time database should be reinstated. Manatee County Schools Interim Superintendent David Gayler said that process has begun.
• Additional staff should be added to support the budget activities of the district. Gayler says the district is in the process of reorganizing its finance department.
• Provide the board with more detailed and timely financial statements.
• Expand the use of reserves to ensure expenditures don’t exceed appropriated levels. Gayler says this is under way.
• Ensure the initial annual budget includes all significant programs. Gayler says the district will install a line-item budget process.
• Duties of the Internal Audit Committee should be expanded to include analysis of textbook budgets.
• Duties of the director of finance should be evaluated to determine if budget oversight responsibilities should be expanded.
• Develop written policies and procedures. Gayler called this “a no-brainer.” 

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Currently 1 Response

  • 1.
  • Once again the entire truth has not been brought forth. This audit was for one year 2011-2012. McGonagal and Drake have worked hand in hand on this. I personally advised Mr. McGonagal and his staff that the insurance fund was not funded. Employees were paying $50.00 towards their insurance and $75.00 for family members. I spoke with members of the Michigan Education Association and New Jersey. They said they would that very moment purchase health insurance from Manatee County for their entire state educational employees as it was impossible to run it on those premiums. They literally blew me off. They knew and they somehow still balanced their books. How? I don't know. This problem is over six years old. Also if the high schools initially received 50% of their budget on books and then received 100% why did not one single school advise downtown that they had too much money? Or is the investigation flawed and has mis-stated? Or is the culture of dishonesty so deep or so inept?

    We the public were promised a certified public accounting audit. Neither firm had a CPA on payroll. We did not get what the Board promised. The question in my mind is were they really qualified to produce the report? Did they understand the way schools budget? The county received awards year after year for their fabulous accounting procedures. How?Remember they have said that McGonagle and Drake should have been fired for cause (John Bowen the attorney told the Board they had to accept McGonagle's resignation, they didn't they could have suspended him, put in the interim and denied him his benefits and $500,000 cash payout at our expense, they both should have not received the retirement package because they defrauded the public by incompetence).

    The investigators stated that the benefits were calculated incorrectly. They were informed by me that the social security and medicare benefits were 5.65 and in their report they state that they were 7.65. The past two years those taxes were reduced by 2% so instead of a negative impact they should have produced a surplus. Where is that money and where did it go to?

    At the end of the day there are more questions than answers.

    What about the other years budgets? Will we ever know? Gayler just keeps saying you can't live in the past. The past shapes the future and if you don't know the past you will repeat it. An examination of those failings needs to be made and understood. When you have $640,000 Million Dollars and you can't account for all of it, this is problematic.
  •  
  • can't believe it
    Fri 18th Jan 2013
    at 8:10pm
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