Pennsylvania Department of the Auditor General Eugene A
Transcription
Pennsylvania Department of the Auditor General Eugene A
3/27/2015 Pennsylvania Department of the Auditor General Eugene A. DePasquale Bureau of School Audits Financial Challenges : What have our audits revealed about school districts’ financial struggles? PASBO 2015 March 12, 2015 2 Department of the Auditor General’s Statutory Authority • The Constitution of Pennsylvania and the Fiscal Code provide the broad authority and duty of the Department to conduct audits of the Commonwealth’s public school entities. • Inherent in this broad authority and duty to conduct audits it is necessary to ascertain that the funding received by publicly funded schools has/is being expended for lawful and intended purposes. 1 3/27/2015 Auditor General DePasquale’s Goals • To focus on whether children are being educated. • To focus on whether the schools are financially stable. • To focus on whether schools are safe. • To focus on identifying those schools that need the most help. 4 Act 141 of 2012 • Implemented by the PA Board of Education Developed criteria to gauge a district’s status. • Financial Watch List - Gives the district access to additional technical assistance from the Pennsylvania Department of Education (PDE). • Financial Recovery Status - PDE makes the determination, district receives PDE appointed chief recovery officer who oversees the district and the development of a district-wide financial recovery plan. 2 3/27/2015 Public School Code • Districts cannot increase property taxes if their unassigned fund balance exceeds 8% to 12% of their expenditures. • The smaller the expenditures the larger the fund balance can be. • Districts cannot raise taxes get waivers for 6 Focus of Our Financial Audit Objective • Assessing financial stability before a district goes onto financial recovery/financial watch. • Examining trends that can suggest whether the district’s performance is moving in a positive or a negative direction. • Providing the district with benchmarks that it should continually monitor. 3 3/27/2015 7 Source of Criteria PASBO Other States - Colorado National Forum on Educational Statistics PA Board of Education 8 Benchmarks Reviewed Level of the general fund – fund balance (assigned and unassigned). Amount of total debt service Current ratio (current assets ÷ current liabilities) of all governmental funds Quick ratio (cash + investments) ÷ (current liabilities) Trend of annual changes in financial position for all governmental funds Percentage of total expenditures to charter schools 4 3/27/2015 Challenging Financial Environment 1. Reductions in local funding because of the recession. 2. More difficult to raise taxes. 3. Overall reductions in state funding. 4. Pension costs skyrocketing. 5. Charter school tuition increases. Common Reactions • Closing school buildings. • Spending down fund balances.* • Requesting a tax waiver to cover pension costs, which allows taxes to be raised for that purpose. • Moving unassigned fund balance to assigned fund balance in order to cover pension costs. • Refinancing debt. 5 3/27/2015 Geographic Similarities • These challenges are effecting both rural and urban school districts. By in large we have not seen as many financial problems in the suburbs. • Urban Areas: ▫ Weak tax base. ▫ Inability to grow through new buildings or reassessments. ▫ After a certain level, tax collections actually drop when rates are increased. Geographic Similarities • Rural Areas: ▫ Less opportunity for vertical integration in order to reduce costs. ▫ Staff must fill multiple administrative roles, creating fewer checks and balances. ▫ Enrollments dropping, but some costs still high, such as transportation. 6 3/27/2015 Other Trends • Citizens increasingly questioning travel reimbursements and credit card use. • More incidents of fraud. • Increased internal and external lawsuits, resulting in higher legal costs. • More instances of over expending the budget and/or making unrealistic budget assumptions. Case Example: Increasing Lawsuits • The bureau encountered a school district where a lame duck board entered into an agreement with the district’s teachers union. • The new board felt that the agreement was financially unsustainable and tried to reopen it. • The teacher’s union sued the board saying they did not have the power to reopen the agreement. • The judge sided with the teacher’s union. • The board is appealing the judge’s decision. 7 3/27/2015 Case Example: Old Agreements • The bureau encountered a school district that had been collecting taxes for a local library for decades. • This was not a problem until local tax rates plummeted. • The district ended up making up the difference between the tax collections and what it had agreed to pay the library. Case Example: Extra Revenue • The bureau encountered a school district that leased a mine on its property. • It then entered into a series of bonds, thinking it could use the revenue from the mine to pay-off the debt. • The mine ran out and now the district cannot pay off the bonds. 8 3/27/2015 Districts Should Keep In Mind • Board members should have the information they need to make good financial decisions, such as: ▫ Comparison of budgeted revenues and expenditures to actual revenues and expenditures (monthly). ▫ Cash flow statements. ▫ A list of payments to approve. ▫ A list of unexpected (unbudgeted) revenues. • Districts should consider maintaining a year-round budgeting process. Districts Should Keep In Mind • Boards may want to consider establishing a finance committee. • Districts should assess their contract monitoring process. ▫ Even if a contract does not have to be bid, districts should do something to ensure they are getting a reasonable price and a quality good or service. ▫ The contract monitoring process should be written down. 9 3/27/2015 District’s Should Keep In Mind • Consider adopting a policy that establishes a minimum fund balance (unassigned + assigned). It should be at least 3 % of total expenditures. • Establish strong internal control procedures to ensure operational checks and balances. COSO is a good place to start. • Consider adopting policies for travel reimbursements that require receipts to be provided and expenses approved before reimbursement is made. Districts Should Keep In Mind • Credit cards can be useful, but it is not always a good idea to use them to fund normal operations. • If you use credit cards, ask that employees sign a user agreement. • Try to have a dialogue with citizens about the district’s financial challenges. • Try to achieve as much transparency as possible when making difficult financial decisions. 10 3/27/2015 Questions Danielle Mariano Director of the Bureau of School Audits 717-787-2323 11