This story originally appeared in The Aurora Beacon-News on May 27, 2014.
By: Kalyn Belsha
AURORA — Serious lapses in financial record-keeping and reporting have occurred at East Aurora School District over the last school year, a recent report prepared for the district shows.
The district’s superintendent said he did not know the exact cause of several major issues — all of which began before he took over leadership of the district in April — including why totals in the district’s bank statements and checkbook did not match up for at least eight months.
He also was not sure why a bond payment was made late and why the state-mandated annual financial audit was not handed in on time, an issue that prompted the state to threaten to downgrade the district’s financial rating or withhold payments unless the audit was produced. The audit eventually was handed in at the end of January, more than two months late, and the state agreed not to penalize the district.
Other issues included an “inconsistent and inefficient” purchase order process, purchases made that bypassed the district’s approval process, and several negative fund balances in the district’s budget — which is supposed to maintain positive balances and necessitated that the budget be amended. The district’s financial statements that monitored grant spending did not match budgets that were sent to the state.
“It’s about systems issues,” Superintendent Michael Popp said. “There’s nothing in (the report) that’s insurmountable; there is nothing in here that can’t be corrected.”
Popp said he did not want to blame anyone for past problems and was focusing instead on fixing the remaining issues.
“My focus has really been on not going backwards to find the ‘what’ [or] the ‘how’ they started the issue,” Popp said. “My role really has been to identify the issues and then focus on the solutions … . If we put a system in place and someone doesn’t follow that system, that’s what I’m really going to care about a lot.”
The April 28 report was sent to Popp by Crystal Financial Consultants, the company the district hired in February to help with accounting and financial reporting in the absence of a full-time business office director. The district agreed to pay the company up to $100,000 for its services.
The district’s former business director, Ernest Clark, was put on administrative leave in mid-December and never returned. East Aurora approved a settlement with Clark last month, agreeing to pay him $30,000 if he resigned and dropped the discrimination charge he had previously filed against the district.
The district hired Christi Tyler, West Aurora School District’s chief financial officer, to take over as the assistant superintendent for finance.
Since February, multiple financial consultants — including Tyler — have worked to correct issues dating back to last summer with the district’s budget and financial records.
Records do not match
One of the biggest problems was that the district had failed to do the record-keeping necessary to make sure the money it had in the bank matched the amount showing up on what is essentially the district’s checkbook, a process known as bank reconciliation. The district failed to make sure those ledgers matched from July 2013 until around February, when Crystal Financial Consultants began its work, records show.
Usually, a district would reconcile those statements every month, to make sure fraudulent or mistaken charges did not occur.
According to an email obtained through an open records request, one consultant working to fix the situation called the July 2013 mismatched records “a mess.”
A February email from a consultant to former Superintendent Jerome Roberts showed that in January, those records were off by $50 million. The district’s bank and investment statements totaled $91 million, he wrote, but the district’s computer program showed $41 million. Incoming state and federal grant dollars also were “significantly understated by several million dollars” in the district’s checkbook.
About $7.5 million was used to pay off some district debt, the consultant wrote, but that electronic payment was never recorded on the district’s financial statements.
It took consultants until the end of April to fix the July and August records. They are now working on the remaining months — although that work should move much more quickly, they said, now that the initial problem has been resolved.
Turning it around
Since the consultants started their work, the report said, many district records have been corrected so they are in line with state expectations and accounting best practices, and staff is getting additional training. Staff will need more training on the purchasing process, auditing best practices, grant management and monitoring bank statements and district records, the report said.
Part of the problem, Popp said, was that the district was using two computer systems to monitor its finances last July and August, which caused many record-keeping problems. At the time, the district was in the process of switching from an outdated system to a more modern one.
“The difficulty with what happened there is that on a day-to-day basis, I can’t tell you right now, are all of the accounts balanced,” Popp said, adding that the district does have healthy balances in the bank. “Our accounting though in-house is the major work ahead of us right now.”
The district is hedging its bets that Tyler can turn around the business office, which had record-keeping troubles long before Clark began last summer.
Popp said he is confident Tyler can handle the challenge. Tyler said before accepting the job that she was well-aware of what needed to be done because she had seen the issues up-close during her consulting time.
Popp said Tyler will be training her staff on how she wants procedures to be done in the future and he will leave it up to her to decide if she needs more help, or if the current staff needs improvement.
“Her role is really, set up the system and make sure that staff have the training they need,” he said. “Ultimately, she runs that department, and so she can assess … the quality of [the] staff and if they’re learning at the rate she wants them to learn.”