A routine audit by the Garfield Re-2 School District found a surprise surplus of over $4 million in the district’s fund balance last month.
But the unexpected funds are not exactly good news.
Proper funding for capital projects and what the district can do around staff salaries, benefits and one-time expenditures hinges upon knowing what is in the bank account.
Officials are looking at the are positives; that there is no indication that there was any criminal activity, which can potentially arise when unallocated money is lying around. There is no police involvement around embezzlement or stealing of funds, or any of that kind of thing.
“If it was a $4 million deficit, it is a whole different kind of conversation,” District Director of Communication Theresa Hamilton said. “The No. 1 thing on the mind of the administration, the school board is they want to be confident in the numbers that are in the accounts.”
According to Hamilton, the overage was identified when the board received a copy of the draft audit from McMahan and Associates during a work session in January.
“While the budget projections and the 2019-20 budget indicated positive changes in the fund balance, none of those documents projected a $4 million overage. Without quarterly reports to the Board, it was not possible to gauge the status of accounts,” Hamilton said.
Re-2 School Board President Anne Guettler said she received an email in October from the auditors about concerns with the financial reporting that needed to be addressed.
“So that’s when we started peeling the onion to see where they were,” Guettler said.
The audit process typically begins in early October for the previous fiscal year.
McMahan and Associates, which audits the district’s books, sends a team of accountants on site for 3-4 days, and also works remotely throughout the process.
Audits are due to the Colorado Department of Education by the end of December unless an extension is granted. After inaccuracies were found Garfield Re-2 applied and received an extension for the 2018-19 audit.
In the original 2018-19 budget the district anticipated a deficit of $221,754. Initial results from the audit showed a surplus of $4,067,837, which was shrunk to $3,812,856 after reconciliation.
The reconciliation process required the district to correct several inaccuracies found during the initial audit. Timely and proper reconciliation of cash and investment balances is critical to safeguarding assets and ensuring accurate financial reporting.
Auditors found several material weaknesses, or problem areas, including deficiency in internal control and misstatements of the financial statements.
Although the audit indicates a significant increase to the fund balance, Hamilton said they are not certain those dollars are coded to the proper funds.
“That is why we have a certified public accountant assisting with account reconciliation. Until we complete that process, we are not confident that those dollars remain unencumbered.”
With several accounts as required by the state, Hamiltom said since the accounts weren’t reconciled, the district won’t know until all the accounts have been checked where the money belongs or if it might not have been allocated to another fund.
Guettler said CPA Paul Backes told the board that when material weaknesses such as those found in the 2018-19 audit do emerge, many times the organization has experienced turnover in the finance department, much as Garfield Re-2 has experienced over the last 18-months.
According to a news release last week from the school district, the material weaknesses indicated in the audit were related to a lack of practices and procedures to ensure that the district follows Governmental Accounting Standards Board accounting requirements.
After the district was made aware of the issues they hired an outside accountant to complete the reconciliation.
The district hired CPA Christine Stouder, who is currently going through the cash accounts of the district.
“Our CPA who came in to do cash reconciliations said that our accounts had not been balanced since July of 2018,” Guettler said. “The good news is we are very confident that nothing happened with that money, but there were many transactions worth millions of dollars that were not posted. And that’s substantiated in the audit.”
According to Guettler, long-time Director of Finance Christy Hamrick left the district in July 2018, not long after the district’s accountant.
Hamrick had been with the district for 17 years.
“So suddenly we had a transition, and we didn’t have a lot of time for training,” Guettler said.
“We brought someone new in and they didn’t know the systems we had in place, we have very complex software.”
Mike Rynkiewicz, who replaced Hamrick as chief financial officer, retired at the beginning of February.
Backes told the board the district’s reconciliations were not prepared in a timely manner or accurately. Backes said the district’s primary operating account was not reconciled throughout the year and the June reconciliations were not prepared by the date of the audit fieldwork, and when the reconciliation was provided, it was inaccurate.
MILL LEVY MONEY ACCOUNTED FOR
Hamilton said all funds collected through the mill levy is accounted for by Re-2.
The levy, which voters passed in 2018, helped the district bring the wages and benefits of district employees up to the standards on neighboring communities to help retention.
“When we went for a mill levy we went from a pretty archaic salary schedule to what’s called a steps and lanes schedule. That honors years of service as well as education,” Hamilton said.
“We had a good idea of what it would take to move everybody from the old system to the new system as a one-time shot, but then you also have to build in some sustainability. As people stay in the system, that’s the whole idea, is that you want them to stay.”
More than $4 million of the $4.7 million collected last year was used for salaries retroactively to the beginning of the 2018-19 school year.
Hamilton said that $691,000 was left in reserve and put back into the general fund.
WHERE THE DISTRICT GOES FROM HERE
The district is currently looking to fill three positions to help make sure a similar situation doesn’t happen again.
“We are talking about adding an accountant, a controller or senior accountant, in addition to the director of finance just so we have more sustainability over time,” Guettler said.
“Finance is one of those things that touches every department in a school district. Without a director of finance it makes it impossible to plan for the future. Those are things we need to be working on right now.”
The board of directors agreed to work with Hazard, Young, Attea & Associates to find a temporary chief financial officer to assist with budgeting for the 2020-21 school year.
“We don’t have financials from this year, so we don’t really know where we are at. We do have a couple supplemental budgets that we have done,” Guettler said.
“We are also trying to solve the long term problem, but in the short term we have Ms. Stouder coming in and balancing the accounts.”
District officials aren’t sure what would happen if problems with accounts persist, but Guettler said she heard it could affect accreditation.
“We can’t fix what happened in the past, we can only really fix what we do processes and procedures-wise and staffing-wise moving forward,” Hamilton said. “The No. 1 thing on the mind of the administration, the school board is they want to be confident in the numbers that are in the accounts.”
The district is transitioning a payroll specialist to an accounting position to work directly with Stouder over the next four months.
The board is still looking to the future with the search for the new superintendent underway. They initially hoped the new superintendent could hire a new finance person but the board realizes they cannot wait and need to fill that position immediately.
“You need to have a finance director that can tell you every minute of the day how much money you have in place, and when you don’t know that you have to be very cautious in your spending,” Guettler said. “Everybody is working together to at least keep the ship afloat, but we really need to get a director of finance in as soon as possible.”
The district believes it will take some time to fix the mistakes that were made.
“This is not an easy fix, (Stouder) is good and has found a lot of stuff, but she is still reconciling cash, and we have a lot of other funds that need a lot of attention as well,” Guettler said.
TERMINATION OF BRENT CURTICE
Guettler said she could not comment on the termination of the former superintendent Brent Curtice because it is a personnel issue.
Curtice was terminated during the board’s meeting last week at Cactus Valley Elementary in Silt.
Assistant Superintendent Heather Grumley was named interim superintendent.
Grumley has been with the district for many years, starting as a teacher before moving up to the principal ranks.
“We have absolute confidence in Heather Gromly and her leadership team,” Guettler said.
“I have a brand new board, four new people, and they have put in the time and the work to learn the process. They are fully engaged and determined to help right this ship and make sure we do the best for our community, tax payers and students and our families.”