Monrovia School Link

Monrovia School Link ~ Number 147 ~ November 3, 2005

Below, Board Member Clare Chesley responds to the comments of Dennis Jones, a Monrovia resident and certified public accountant, who at the last board meeting said he had found problems with how the district’s money is handled. Also, don't forget the elections on Nov. 8, this coming Tuesday! Get out and vote for your choice.
~ brad@sacklunch.net

From Clare Chesley:

Generally I don't respond to public comments made at board meetings via your email newsletter, but due to the seriousness of Mr. Jones' charges, I feel compelled to respond.

Let me start with my summary - to make sure it's read by all. Mr. Jones's charges that the board is not reviewing and following up on the audited financials is wrong. However, Mr. Jones's interest in and emphasis on the importance of the budget and the board's role and responsibilities with regard to the budget is right on. So, I welcome his interest and questions.

Furthermore, the area of greatest importance for the board is the budget and I take my responsibilities very seriously and exercise due care and diligence in reviewing information related to the budget.

The budget is complex. So, it is best to start by breaking it down to a simple level and then if folks are interested, they are welcome to contact me for more details.

MUSD has a fiscal year end (6/30) budget of approximately 40+ million.

There are two main categories of budget information that the board reviews.

1.) Audited Financials - past tense
2.) Current and Projected (3 yr ) Budgets - current and future tense

Mr. Jones' charges relate to the audited financials. So, I'll focus on them.

AUDITED FINANCIALS
The audited financials are prepared by an OUTSIDE audit firm. Education Code (state law) stipulates that the audit firm must be changed every 6 years, although we may simply change audit partners. This decision will be up to the board, but changing the persons auditing the books is mandatory.

The audited financials are past tense. What that means is, we get the audit report about 6 months after the fiscal year end. I look at several things in the auditor's report but my main focus is to determine if there are any negative trends and/or bad management/operational practices. The fiscal year-end report that Mr. Jones is discussing is the 6/30/04 report which was reviewed extensively by the board this past January, 2005. I invite the public to refer back to that board meeting - get a copy of the meeting from the library or KGEM - for our extensive discussion and in depth questioning. The questions Mr. Jones raises were already raised by us and more.

First, the good news, and it should not be understated, is that the auditor's report was unqualified. In laymen's terms this means that the MUSD financial reports met or exceeded all the generally accepted accounting practices' required standards of review.

However, the auditors' findings and recommendations highlighted some negative management/operational practices which included the following:
1.) accrued vacation time carryovers; and
2.) errors made with regard to federal categorical funding.

Both items were discussed extensively during the board review of the audit and both items have been addressed or are being addressed.

Let me be clear that although the vacation carryover is indeed a bad practice from a management perspective, it is not going to lead to the financial ruin of the district, whereas, declining enrollment can lead us into serious deficits, thus the reason for the heightened focus by the board on the latter. By the way, the newsletter incorrectly stated that employees were taking more vacation than they had coming.
"In a section of the audit dealing with compensated absences, Jones said employees, for those years, were compensated for more vacation time that was allotted."
The opposite is the problem. Employees are not taking the vacation that they are due.

And, there is no hidden quarter of million dollars to be found here - I wish.

Here's a copy of the auditors' finding (in italics)

Finding 2004-2 Compensated Absences
There were at least twenty-two employees whose vacation carryover balance exceeds the amount allowed in the classified contract. The maximum vacation carryover is 352 hours (22 days x 8 hours x 2 years). The total liability accrued by these individuals, including benefits, exceeds $288,000. Although the liability did not increase as much as in 2002-03, the total District liability for compensated absences does continue to grow, and grew by more than $30,000 in 2003-04.

Auditor's Recommendation
Direct District employees to use their vacation time. This not only allows employees to be more productive, but provides better internal control.

An idea presented to me by a parent was to implement a "use it or lose it" limit. This is certainly something we should explore. But again, for me, although this is an important issue, it doesn't rank in the critical sphere.

The more serious finding of a negative operational practice was regarding the proper reporting of federal categorical funding. These mistakes had to do with properly understanding and preparing the many compliance reports for the expenditure of federal categorical funds. Dr. Joel Shawn carefully reviewed the errors and what his department was doing to correct the reporting. This is a very difficult and important job and not one that we can take lightly. That's why I found it ironic that Mr. Jones suggested to me that Dr. Shawn's position of Associate Superintendent of Curriculum is unnecessary and we should not replace him. I can't think of a more dangerous thing we could do to jeopardize our categorical funding!

Note: The next auditor's report will be for the fiscal year ended 6/30/05 (past tense) and will be presented to the board some time in January, 2006. We will be reviewing these past findings publicly to determine what remedial progress has been made.

So, as I stated at the beginning, Mr. Jones's charges that the board is not reviewing and following up on the audited financials is wrong. However, Mr. Jones's interest in and emphasis on the importance of the budget and the board's role and responsibilities with regard to the budget is right on. So, I welcome his interest and questions.

If any readers are interested, the following website provides some very helpful guides on school funding. http://www.edsource.org/edu_fin.cfm

We will continue to work with the superintendent and staff and the auditors who prepare the audit reports to monitor current and future spending, analyze our budget, and prepare more helpful budget reports.

Again, as a board member, I take this responsibility the most seriously. I think there is room for improvement but I have no cause to believe that there is any systemic fraud, waste, graft, or other serious offenses by the district staff or superintendent. The staff has shown a high level of professionalism and courtesy to all my questions and concerns and is more than willing to work on improving the delivery and analysis of financial information.

Respectfully,

Clare Chesley

Also on the Web at www.monroviaschoollink.com