WATCHDOG: Atlanta schools’ ledgers slipshod

Widespread errors and missing paperwork have continued to plague Atlanta Public Schools’ financial books despite repeat warnings from auditors.

State auditors noted serious defects in each of the five years since a judge ordered them to begin examining the system. For two years, financial statements were in such disarray that examiners refused to vouch for their accuracy.

Audits provide crucial oversight for agencies by testing their safeguards against fraud and theft and ensuring their balance sheets accurately represent their financial position.

The district’s most recent noted: mislaid payroll records that included a half-dozen personnel files, questionable purchasing card use and trouble verifying a $20 million correction the district had suggested.

The report issued late last year, which covers July 2006 through June 2007, also said the district failed to produce documents supporting its accounting of capital assets, debt payment service and payroll —- leading the auditors to decline to give an opinion.

Auditors do so when they don’t see enough evidence to know an agency’s financial statements are correct.

“That’s pretty significant,” said Ben Riden Jr., a deputy state audit director.

On Friday, Superintendent Beverly Hall conceded that the system has struggled with its accounting. But she said there has never been any indication that the district’s actual finances are in trouble.

The failures cited by the state audits are complex and are taking time to fix, Hall said. APS has made progress that should show up in future audits, she said.

“The reports haven’t caught up with the improvements,” she said.

The district’s finances have been contentious for years.

In 2003, a Fulton County judge ordered the state to audit the school system after taxpayer advocate John Sherman took it to court. In prior years, only private auditors hired by the district had reviewed its books. Those audits, which still take place, have been less critical.

Sherman, president of the Fulton County Taxpayers Foundation, said last week that he was shocked to hear the district continues to struggle with its audits.

“I think it’s a sad situation,” said Sherman, a longtime critic who accuses the district of having a bloated administration and wasteful spending.

The recession is driving down tax revenues, he said, making it more crucial than ever that APS use its tax dollars efficiently.

The system had the highest per pupil spending of any of the five large metro districts in 2007. It spent more than three times as much per student on general administration —- nearly $1,600 —- as the next district, Gwinnett, which spent just under $500.

Hall, who has won national recognition as a reform leader, said Atlanta differs from the other districts in ways not captured by the state’s formula for per pupil spending. A consultant APS hired to analyze its spending placed it in the middle of a group of similar city districts, she said, adding that Atlanta is getting a good return on its investment.

The newest audit cited eight material weaknesses —- the most serious level of accounting inadequacy. A material weakness is one that could lead to a major mistake on the system’s books.

The sloppy accounting that auditors noted could have been even more prevalent because some checks were only performed on a sample.

The system hired a new chief financial officer, Chuck Burbridge, in August 2007 to help straighten out the district’s books. He is the third CFO since 2006.

Burbridge said APS does have basic controls, such as separating duties, to head off fraud.

“Those basic controls work,” he said. What the audit warns, he said, is a risk persists that a misdeed might not be caught on a timely basis.

Earlier state audits show the system failed to fix some accounting problems despite promising to do so.

Last year, for instance, auditors said the district didn’t have adequate internal controls over payroll. The examiners cited about $591,000 in errors.

In response, an APS official wrote that the district had found seven employees who were overpaid after being wrongly placed in a higher step on the salary scale. The district said it would get the money back from each.

In the most recent report, however, auditors found an additional $601,800 in questioned payments, leading them to raise the severity of the finding to a material weakness.

The district did not provide any of the 11 time sheets requested by auditors. And of the 116 personnel files auditors requested, APS provided only 110.

“There are holes in the payroll process,” said Riden, the deputy audit director. Much of the questioned pay involved salary supplements, which the district provides on top of state allotments, audit supervisor Tim Ray said.

Burbridge said the district investigated each of the audit’s findings. The six missing personnel files were found, he said.

The district also promised after its 2006 audit to strengthen oversight of its purchasing cards —- credit cards that employees use with the district picking up the tab.

But in 2007, auditors again found lapses, including some mentioned the year before.

One transaction for $267 was termed a “fraud risk factor” by auditors and did not appear to be education-related. An administrator who bought a BlackBerry and accessories apparently wasn’t on the district’s approved list, Ray said.

Burbridge said that the administrator no longer works at APS, but the district believes the purchase was appropriate.

In addition, the district did not provide invoices supporting 16 charges, and examiners found eight transactions where employees split up payments to circumvent spending limits. Both situations violate district rules, auditors said.

Burbridge said the district is reviewing transactions more closely and has provided employees additional guidance on using the cards appropriately.

Hall said the district has been managing the cards adequately. “To date, we have not had any major concerns,” she said. “But when one was raised we went back and checked it carefully.”

The $20 million correction came in capital assets, which the district said it had overstated the year before. But auditors said APS didn’t provide the records to back the change. Capital assets remain a challenge, APS officials said.

Flaws in the district’s complex computerized system have made it hard to accurately record payments and revenues when they originated in some areas, auditors said. That incorrect data fed into the central accounting system, compounding the errors. Often, APS employees went back into the automated system and tried to manually fix problems, auditors said, which led to contradictions in financial records.

The district is rolling out a $4 million upgrade to its system, officials said. That and several new hires, such as Burbridge, should translate to better audits, they said.

“The work that they have done will be reflected in, I believe, the ‘08 audit and prospectively going forward,” Hall said.

The Georgia Department of Education is aware of the district’s problems, spokesman Dana Tofig said.

“We’re keeping an eye on it,” he said. The department ultimately could withhold state funding if a district couldn’t follow the proper procedures outlined in state law, but Tofig said he was unaware of that ever happening.

LaChandra Butler Burks, school board chairwoman, said APS is financially sound and has heeded state auditors’ concerns. “We’ve been working on it little by little, but we’re just now getting to the point where we’re beginning to see some major changes,” she said. “We really strongly feel that in a couple years or so, those audit findings will go away.”

APS BY THE NUMBERS

$662 million: Budget for 2008-09

49,032: Students as of October 2008

6,351: Total full-time employees, including 3,518 teachers

PROBLEMS SCALE

In pointing out financial problems, auditor have three classifications of severity.

Control deficiency (minor) When the agency can’t find or prevent accounting mistakes quickly. (None cited in audit.)

Significant deficiency (moderate) When the agency can’t reliably track financial information, making it possible for the financial picture to be misrepresented. (Four cited in audit.)

Material weakness (serious) When the agency’s accounting problems make it possible the financial picture could be significantly misrepresented. (Eight cited in audit.)

Source: State Audits and Accounts Department

CHECK OUR SOURCES

Find the state audit at: www.audits.state.ga.us/searchRpts.html