Audit: York City district's finances improving, record-keeping poor

Junior Gonzalez, and David Weissman
York Dispatch
  • The audit was conducted from July 2010 through June 2015.
  • The 73-page audit report had four findings, including criticisms to the district's reliance on state funding.
  • Another finding found unaccounted credit-card usage for three months in 2015 amounting to $104,000.

Auditor General Eugene DePasquale announced Thursday that York City School District's financial stability is improving, but several holes were found regarding the district's record-keeping and oversight.

The 73-page audit covered the school district’s performance between July 1, 2010, and June 30, 2015, and had four findings and 15 recommendations.

'Challenges': Financially, the district decreased its long-term debt from $127 million in 2012 to $107 million in 2015, while increasing its general fund balance from $2.7 million to $17 million during that same span.

“We found challenges,” DePasquale said of the school’s finances, but the fiscal situation is “mostly in a better position.”

Despite the improvement, the state's top fiscal watchdog chided the district for poor practices involving credit-card usage.

In the first finding, the auditor general’s office said the district’s fiscal operations were “too centralized” and did not provide “sufficient transparency” to the public, even though it has been declared a district in moderate financial recovery status since 2012 by the Pennsylvania Department of Education.

“The business office wasn’t explaining to the board what the actual budget situation was during the year,” DePasquale said. Instead, the business office was “just giving them soundbites,” he said, adding that prevented the school board from being able to adequately weigh in on the course of financial decisions.

State reliance: A continuation of the first finding stated the district “has been reliant on nonrecurring or unpredictable revenue sources to meet expenditures," which include state funding that is subject to change and largely out of the district's control. The audit also said the district relies on that revenue to improve its general fund position.

In a statement, the district administration said they “respectfully challenge” what they see as criticism for relying on state funding.

“The district is, in fact, largely dependent on state revenue,” the statement reads, “but this is a reality of urban education structured by the school-funding system in the commonwealth of Pennsylvania."

Based on DePasquale's assessment of the district's funding strategy, it appears to be an ongoing trend. In the school district's budget proposal for 2017-18, which was not covered in the audit, state funding is approximately 68 percent of expected revenue for the district. The school board approved the proposal Wednesday evening.

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“Urban districts such as ours do not have enough local resources to address students’ needs, and we are therefore reliant upon the state for that funding,” the district stated in its official response to the finding. It said the large percentage of students in poverty puts "additional demands" on the district.

The district cited larger populations of students experiencing mental illness, food insecurity, homelessness and exposure to more unsafe and unstable environments as some of the issues that place the district in a position to rely on state funds.

The district also said it "strongly" disagrees with the auditor general's classification of state basic-education funding as nonrecurring revenue.

In its official response to the district, the auditor general's office stated, "It is surprising to see the district disagreeing with our characterization of additional basic education subsidies as nonrecurring revenue sources after the district lamented 'the unpredictability of our revenue sources, particularly as they relate to our funding from the state.'"

Credit cards: The second finding in the audit dealt with unaccounted credit-card purchases as well as a dramatic increase in spending. The audit pointed out that the district did not have employees with credit cards undergo training, nor did they sign user agreements. "We found that the district had no policies and procedures governing the use of these credit cards," the audit said. DePasquale said the lack of policies led to the “insufficient oversight and poor record-keeping” by the district upon being audited.

During the news conference, DePasquale called the use of of multiple credit cards by the district to be a “recipe for disaster.” Auditors also found two open credit cards for former employees of the school district.

DePasquale called the actions “literally unbelievable.”

“I have not seen that issue in any other district that we have audited since I have been auditor general,” he added.

The district was unable to support any evidence for three months of credit-card spending, July, August and September 2015.

“Maybe everything was fine, maybe somebody went to Bermuda,” DePasquale said. “We have no idea because there were no receipts for it.”

Charges during those three months totaled more than $104,000.

“That is two teachers' salary,” DePasquale said.

Auditors were given some documentation regarding the charges for the three missing months as they were finishing up the audit, he said. However, since they did not have the information on-hand at the time it was requested, DePasquale said he had “zero confidence” that the information was accurate.

The audit also found misuse of credit cards, including one employee who might have received nearly 16,000 travel points for booking flights under a district credit card. The employee retired in October 2015.

The school district disagreed with the auditor general's finding, stating in the audit's official response that while they agree there are oversight issues, there are processes in place to monitor the use of the district's six credit cards.

The district said it recognized "concerns" regarding the lack of an official credit-card policy and will eliminate the current system in favor of a board-approved system to better oversee and regulate credit-card activity.

PSERS: The audit’s third finding outlined the overpayment of benefits to a former business manager under the Public School Employees’ Retirement System (PSERS). The contract for the former business manager had an end date of June 30, 2013, but the individual left the district on Dec. 20, 2011. The severance payment of $21,500 made to the former employee  was reported as pay to PSERS.

However, according to the PSERS’ Employee Reference Manual, “qualified compensation” excludes “severance payments, unused vacation or sick leave and other payments not based on the standard salary schedule.”

In a statement, the York City School District attributed the reporting to PSERS as a “clerical error.” In its official audit response, the district said it has implemented a new business office policy that “requires staff to consult directly with PSERS” regarding compensation reporting.

DePasquale said he hopes the school district can continue toward a positive path to recovery, and he hopes to examine its progress in the district's next audit next year.

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IT department: The fourth and final finding dealt with what the auditor general’s office found as “wasted money” with regard to expenses and equipment in the district's information technology department.

The district was unable to provide a record of the cost of IT equipment purchased during the audit period.

Inventory records provided to auditors were “unreliable." In a randomized selection of 17 of the 10,000 IT items owned by the school district, eight were missing or misplaced.

The audit also found that there were many unused wireless lines being paid for by the district. The audit placed a conservative estimate of $25,000 paid out annually in unused wireless lines by the district.

DePasquale also criticized the district for allowing some employees to use district-issued phones for personal use for only $25 per month. The low charge has partly led to the district's wireless costs nearly tripling from $51,372 in 2013-14  to $144,571 in 2015-16.

DePasquale also said there is lack of proof or oversight regarding district-issued phones for professional usage, which lets employees use the phone and wireless services at no cost to them.

“If you were honest and used the phones for personal use, you’d pay the $25 a month,” DePasquale said. “But if you lied and said you weren’t going to use it for personal use and still used it for personal use, you paid zero.

“Come on,” he said dismissively.

Reaction: State Rep. Carol Hill-Evans D-York City, said she was "pleased with the good news" mentioned in the audit regarding its increased financial solvency.

"I'm encouraged that the other findings will be handled. I have confidence that now that they know what it is they're looking for that they'll address those issues," she said. Hopefully, "the next time the audit is done, we'll be in a better place," Hill-Evans added,

Board member Juanita Kirkland attended the news conference and said that while she was not a member of the school board during the audit's scope, she said she believes the district is "headed in a positive direction right now.” She said with the team currently in place at the district, she expects "nothing but good things to come out of the district, accountability included."

In a statement, the school district said it hopes to find an ally in the auditor general to improve the success of all schools in the commonwealth. "The need for fair, consistent and timely state allocations is especially urgent in urban districts like York City, and we respectfully ask the auditor general’s office to join us in advocacy for making education a top priority for state lawmakers," the statement reads.