School district annual audit offers praise and a few suggestions for RE1J

Changes in business department leave reporting gaps

An audit of the Gunnison RE1J school district’s financial practices found things to be in order for the most part after the 2010-11 school year, despite some changes at the top of the business department over the last two years that put a few wrinkles in the financial reporting.

Pam Baumgartle and Steve Hovland of Dalby Wendland and Co. gave the school board a presentation in early December of the auditor’s report that was produced after a four-person team from the firm started looking at the district’s books in October.
Hovland, the audit manager, echoed Baumgartle’s kudos for superintendent Jon Nelson and district business manager Stephanie Juneau’s handling of the transition, saying, “With the leaving of the business manager right before the audit, that kind of put the district behind the eight ball.”
Although former business manager Jan Brummond only held the district’s top accounting job for about a year, Baumgartle told the board she didn’t always follow the financial reporting process as closely as she could have.
Board member Bill Powell pointed out that rapid turnover in a school district’s business department can make auditors suspicious of a school’s financial standing or methods of reporting what they bring in or spend. Hovland agreed.
But the overall picture was good, according to the auditors, who gave “a clean opinion on the audit,” meaning the firm’s team didn’t find anything grossly out of order in the district’s books during a four-day stint at the district office and more than a month of perusing the ledger.
One of the things Hovland thought was significant in his team’s review of the district’s financials was that the capital construction projects the district had undertaken in 2010 were finished in 2011, which let money move from a “construction in progress” fund to be listed as an asset.
“Within the district, the change in net assets was a positive of about $400,000,” Hovland said. “So the district is better off in the current year.”
With those new buildings open and complete, the district hasn’t taken on any new long-term debt since the bond sale in early 2010, which cost about $1.5 million last year in property tax.
Put that saved money with more than $1 million the district got from a federal program that pays local governments for non-taxable federal land, and the district was able to count about $1 million more in 2010 than it had the year before, mainly because the district didn’t need to transfer as much money to cover insufficient funds.
But despite the new revenue and an increased number of students, Hovland said, “The operating expenditures and the total expenditures have remained fairly flat,” attributing the steady expenses to the attention paid by administrators and staff.
“You had favorable expenditures [from the General Fund] of over $248,000,” he said, meaning the district stayed under budget on the purchases it made.
Along with its report on the district’s overall financial management practices, the auditor also took a detailed look at the way federal money is handled, judging the system of checks and balances in place throughout the financial reporting process, “and all of that was very clean,” Baumgartle said.
Regardless of the good behavior, the district still faced a closer look at how federal money was being spent across the schools than many of its counterparts around the state.
Due to what Baumgartle called “material deficiencies [in the district’s reporting] in the past,” auditors were required to look at 50 percent of the $1,157,000 in federal money spent at the school over the last fiscal year.
She told the board, “You’re classified as a ‘high risk.’ You have the material weaknesses in there, that’s the reason we have to audit 50 percent. If you didn’t have those material weaknesses we would only have to audit 25 percent” of the federal money spent at the school.
In addition to the material weakness already on the books, the auditor will report another material weakness after the latest audit. This time, the auditors said, they were concerned with the district’s failure to get the account balances and accounts reconciled before the audit takes place at the end of each year.
“A lot of this arose because of the fact that you had a change in the business manager. She left right at the end of the year, a little bit before Stephanie [Juneau] could get on board and all of those yearly reconciliations were not taken care of,” Baumgartle said. “That’s something that hopefully won’t be a problem for you in the future.”
Superintendent Jon Nelson assured her, “I anticipate with Stephanie on board, in the long term that won’t be an issue.”
But the auditors had a few other recommendations for shoring up the district’s accounting practices, including some separation of duties in the payroll department, where a single employee is currently able to input payroll information, but can also change the pay rate. The auditors felt the arrangement needed more oversight.
The auditors mentioned a couple of areas where they felt a separation of duties would have improved the district’s safeguards, but Baumgartle acknowledged, “It’s always been difficult for small entities.”
Two other recommendations dealt with the way the district records the grants it receives and spends money on capital projects.
In her endorsement of the auditing process, Baumgartle said she wanted to “point out one adjustment that worked out extremely well for district.” She explained that the auditors always send out confirmations to granting agencies to check that the proper amount was sent and received. “When Gunnison County tax revenue was checked with district records, they were not able to come up with the same dollar amount that the district had provided to them. In that process they found their cash balances weren’t properly reconciled and they owed you about $1 million. So it worked out quite well.”
Other than a few unofficial recommendations to the board about keeping tight, consolidated controls over spending and vendor approvals, the auditors turned over their report. The board voted to accept the audit, which is due to the Colorado Department of Education by the end of the month.